the changing time series properties of earnings cash flows and accruals has financial reporting become more conservative abstract this paper documents changes in the patterns of earnings cash flows and accruals over the last four decades in the absence of a generally accepted definition of conservatism a number of measures of reporting conservatism are identified and examined these measures rely on the accumulation of nonoperating accruals the timeliness of earnings with respect to bad and good news characteristics of the earnings distribution and the market to book ratio the patterns are consistent with an increase in conservative financial reporting over time the findings have implications for accounting standard setting regulation of financial information and financial statement analysis

meta paradigm change and the theory of the firm many seemingly unrelated debates on the theory of the firm are in fact part of a single deeper transformation of the social sciences as the foundational assumptions of 20th century social science have slowly been shown by science to be false new sub paradigms have emerged which cumulatively drop i theoretical assumptions about markets to explain firms ii epistemological assumptions about knowledge to explain diversity and iii metaphysical assumptions about causality to explain technical change debates occur across each of these levels

the politics of conflict and consent abstract transaction cost economics claims to model the labor contract in terms of the opportunism practised by workers a recent alternative has seen custom as the main means by which workers impose their control of the contract both fail to explore workers co operative behavior in the workplace pay insufficient attention to managerial behavior and misunderstand the social organization of conflict and consent materials from industrial sociology and labor history are used to illustrate these limitations to show how the labor contract is in fact negotiated and to suggest how an alternative approach might be constructed

job quality and the economics of new labour a critical appraisal using subjective survey data this paper assesses the record on job quality during the early term of office of the new labour government by interpreting from a political economy perspective changes in a variety of subjective measures of job quality taken from several different data sources we find some improvements in job quality over the period 1998 2004 however we argue that these improvements have arisen not because of new labour s policies towards the workplace but because of low and falling rates of unemployment despite recent improvements a large number of workers in britain remain in low quality jobs and without a radical change of policy direction sustained and substantial progress in the quality of work will remain elusive

serial correlation in management earnings forecast errors we examine whether management earnings forecast errors exhibit serial correlation and how analysts understand the serial correlation property of management forecast errors mfes mfes should not exhibit serial correlation if managers efficiently process information in prior forecast errors and truthfully convey their earnings expectations through management forecasts however for long horizon management forecasts of annual earnings we find significantly positive serial correlation in mfes and sample self selection does not seem to drive this phenomenon further analyses suggest that managers unintentional information processing bias contributes to this positive serial correlation analysts anticipate the intertemporal persistence of mfes but underestimate the persistence level when reacting to management forecasts our findings have implications for market participants who rely on management forecasts to form earnings expectations and also shed light on the efficiency of managerial decision making

does past success lead analysts to become overconfident this paper provides evidence that analysts who have predicted earnings more accurately than the median analyst in the previous four quarters tend to be simultaneously less accurate and further from the consensus forecast in their subsequent earnings prediction this phenomenon is economically and statistically meaningful the results are robust to different estimation techniques and different control variables our findings are consistent with an attribution bias that leads analysts who have experienced a short lived success to become overconfident in their ability to forecast future earnings

transaction cost economics the natural progression abstract this manuscript provides the nobel laureate s reflections on transaction cost economics the overview section frames governance as the overarching concept and transaction cost economics as the means by which to breathe operational content into governance and organization the vertical integration section identifies efficiency factors associated with determining when a firm produces a good or service to its own needs rather than outsource a discussion of the rudiments of transaction cost analysis is subsequently provided puzzles and challenges that require pushing the logic of efficient governance to completion are examined and followed by concluding remarks

developing an understanding of meaningful work in economics the case for a heterodox economics of work the idea that work has meaning and is meaningful beyond its contribution to consumption has been largely absent from mainstream economics this paper gives reasons for why mainstream economics has neglected the idea of meaningful work it identifies the idea of the disutility of work the assumption of free choice on the part of workers and the use of a formal and individualistic method as key constraints on the ability of mainstream economics to incorporate the idea of meaningful work it also addresses the contribution of happiness economics and shows how it is unable to encompass the idea of meaningful work ideas on work from heterodox economics are then discussed these ideas provide essential insight and inspiration for the incorporation of the idea of meaningful work into the economics of work in all respects the paper seeks to contribute towards the development and promotion of a heterodox economics of work that has the goal of meaningful work at its centre

the underdetermined knowledge based theory of the mnc in this note we revisit two core propositions of the knowledge based view of the firm found in the seminal work of kogut and zander 1 that multinational corporations mncs exist because transfers and re combinations of knowledge occur more efficiently inside mncs than between mncs and third parties and 2 that the threat of opportunism is not necessary although it may be sufficient to explain the existence of the mnc their knowledge based view shifted the conceptualization of the firm from an institution arising from market failure and transaction costs economizing to a progeny of superior knowledge governance we question these conclusions arguing that firms are but one of the many types of epistemic communities possessing and nurturing procedural norms identity and the cognitive linguistic and reflexive attributes conducive to efficient exchange and re combination of knowledge among their members important insights may be gained by applying the concept of epistemic communities implicit in the knowledge based perspective beyond firm level hierarchies journal of international business studies 2011 42 427 435

the function of authority in transaction cost economics abstract this paper questions the transaction cost characterization of observed authority relations as efficient governance structures various inadequacies in the transaction cost account of work organization and the limits of firm size are traced to its neglect of the possibility that authority may be abused opportunistically this exemplifies a more general propensity in the transaction cost literature that of explaining economic organization in functionalist terms with little attention to the causal mechanisms through which efficient governance structures might actually arise three such mechanisms are considered but none is found to provide an adequate rationale for the imputation of efficiency to observed structures

the bright side of managerial over optimism human estimation and inference are subject to systematic biases such as overconfidence and over optimism in contrast to prior research that has identified multiple negative consequences of these biases we focus on positive effects we empirically examine a setting in which over optimism a is a related but different bias from overconfidence b emerges dynamically in a rational economic framework and c generates higher managerial effort importantly this additional effort improves firm profitability and market value

new institutional economics in the post socialist transformation debate the paper suggests that there is a tension between the basic tenant of new institutional economics nie and the manner in which it has been applied in the debate on post socialist transformation this tension is explored in the context of four main perspectives on nie i property rights ii transaction costs economics iii new economic history and iv evolutionary economics there are two main arguments the first is that the transformation phase should be seen as open ended rather than a closed process where the pure market is the inevitable end result the second is that although the nie literature touches on most of the issues which are relevant to post socialist transformation the insights that it offers are still too general for policy guidance

a policy agenda for pro poor agricultural growth abstract sub saharan africa and parts of south asia are likely to hold large numbers of very poor rural people into the foreseeable future although both history and theory suggest a pre eminent role for agricultural growth in poverty reduction in poor agrarian economies such growth today faces new difficulties many of these difficulties are endogenous to today s poor rural areas others result from broader processes of global change but some are due to changes in the dominant policy environment emphasizing liberalization and state withdrawal examination of 20th century green revolutions suggests that active state interventions were important in supporting critical stages of agricultural market development unfortunately such interventions benefits in institutional development are easily overlooked whereas their high costs are much more visible policy implications are discussed

rational overoptimism and other biases rational agents with differing priors tend to be overoptimistic about their chances of success in particular an agent who tries to choose the action that is most likely to succeed is more likely to choose an action of which he overestimated rather than underestimated the likelihood of success after studying the comparative statics of this mechanism i show that it also causes agents to attribute failure to exogenous factors but success to their own choice of action to disproportionately believe that they will outperform others to overestimate the precision of their estimates and to overestimate their control over the outcome

does meeting earnings expectations matter evidence from analyst forecast revisions and share prices this paper investigates whether the market rewards firms meeting current period earnings expectations and whether any such reward reflects the implications of meeting expectations in the current period for future earnings or reflects a distinct market premium we document that abnormal annual returns are significantly greater for firms meeting expectations controlling for the information in the current year s earnings we then test whether firms meeting expectations experience higher returns simply because their expected future earnings are also higher we find firms meeting expectations have significantly higher earnings forecasts and realized earnings than firms that do not we find that controlling for these higher future earnings firms meeting expectations in one or two years do not receive a greater valuation than their fundamentals would suggest we find however that the market assigns a higher value to firms that meet expectations consistently controlling for an estimate of the firm s fundamental value

transaction cost economics the comparative contracting perspective abstract gregory dow s assessment of transaction cost economics is both thoughtful and provocative although we agree on many matters these remarks focus on our differences i begin with a brief sketch of the framework out of which transaction cost economics operates i then examine the purported bias of transaction cost economics in favor of capital managed as against labor managed firms and my alleged failure to deal with downward opportunism dow s claim that transaction cost economics is given to functionalist excesses is considered next concluding remarks follow

the firm as a nexus of treaties part 1 knowledge its acquisition sharing and or asymmetry the participatory generation of information rents and the theory of the firm masahiko aoki common knowledge and the co ordination of economic activities jacques cremer profit sharing information and employment matti pohjola part 2 vertical integration and the strategic management of the enterprise what is vertical integration michael h riordan vertical integration transaction costs and learning by using kurt lundgren the firm as a nexus of internal and external contracts torger reve part 3 issues of labour organization the viability of worker ownership an economic perspective on the political structure of the firm henry hansmann intellectual skill and the role of employees as constituent members of large firms in contemporary japan kazuo koike the implicit contract for corporate law firm associates ex post opportunism and ex ante bonding robert h mooking part 4 finance and the political structure of the firm capital structure as a mechanism of control a comparison of financial systems erik berglof long term contracts in financial markets hakan lindgren the principle of external accountability in competitive markets herbert gintis union militancy and plant designs kar ove moene can transaction cost economics explain trade associations marc schneiberg and j rogers hollingsworth

clusters entrepreneurial ecosystem co creation and appropriability a conceptual framework extant literature on clusters underplays the role of entrepreneurs and entrepreneurial management in creating and co creating organizations markets and supporting ecosystems we employ transaction costs resource knowledge capabilities and power control based theories to provide a comparative static governance based perspective on clusters we embed this into a more general co evolutionary entrepreneurial theory of the emergence evolution and co evolution of markets ecosystems and clusters we suggest that clusters can involve advantages that help engender superior appropriation of co created value as compared to alternatives entrepreneurial managers faced with a degree of choice will help co create clusters and be part of them for as long as they can appropriate more value in this way than through alternatives

an empirical investigation of oliver williamson s organization of work oliver williamson argues that the attributes of the employment contract like intermediate transactions in general are essentially driven by the specificity of assets in the case of the organization of work it is the particular attributes of labour that determines the transaction costs of any given governance structure the paper presents a stylized account of the transaction cost model of the efficient organization of work stressing an underlying tension and ambiguity in the transaction cost framework the paper exploits a unique dataset to test for the first time with british data williamson s transaction cost predictions concerning the nature of employment contracts williamson tacitly assumes that asset specificity is exogenous in general however there is evidence in the literature that labour specificity is endogenous to employment contracts the paper endeavours to demonstrate that there is empirical evidence to suggest that specialized labour is indeed endogenous in the transaction cost mode

breaking the mould an institutionalist political economy alternative to the neo liberal theory of the market and the state the paper criticises the currently dominant neo liberal discourse on the role of the state and proposes an alternative approach that will allow us to overcome its shortcomings especially its inadequate analyses of the role of institutions and politics it argues that the central problem with the neo liberal framework lies not in its excessively anti interventionist policy conclusions as some of its critics believe but in the very ways it envisages the modus operandi of the market the state institutions and their interrelationships the paper then discusses how we may construct the alternative approach of institutionalist political economy

earthly reward to the religious religiosity and the costs of public and private debt we document that a firm s culture specifically its religiosity affects its cost of debt firms in higher religiosity counties have higher credit ratings and lower debt costs the impact of religiosity is stronger for firms with greater information asymmetry and during recessions further religiosity has additional explanatory power for the cost of bank loans but not the cost of public bonds beyond its impact through ratings this supports the argument that banks have superior abilities in pricing soft information such as corporate culture finally the impact of religiosity is stronger when the lender is a small bank

the informativeness of earnings and management s issuance of earnings forecasts abstract theory suggests that managers issue earnings forecasts to reduce information asymmetry an earnings forecast is more effective in reducing information asymmetry if it contains earnings news that is relatively more informative about the firm s value we hypothesize that a manager is more likely to issue an earnings forecast if investors perceive that earnings are more informative we measure earnings informativeness by estimating the firm s earnings response coefficient erc in quarters prior to the forecast issuance decision consistent with our hypothesis we find that the firm s historic erc is positively associated with management s issuance of earnings forecasts

markets as institutions versus organizations as markets disentangling some fundamental concepts abstract this paper argues that ambiguities in concepts as important as institutions markets and organizations undermine progress of research programs intending to take these components seriously into account after a short review of some current confusions section i section ii discusses recent literature to arrive at definitions that encapsulate fundamental characteristics into pure categories in section iii exceptions and qualifications are introduced so as to operationalize the concepts in the real world 1 i organizations and markets are embedded in an institutional framework and 2 ii they overlap giving birth to hybrid forms however the conclusion contends that it is essential to maintain distinct concepts in order to understand these complex arrangements

the role of accruals in asymmetrically timely gain and loss recognition we investigate the role of accrual accounting in the asymmetrically timely recognition incorporation in reported earnings of gains and losses timely recognition requires accruals when it precedes complete realization of the gains and losses in cash we show that nonlinear accruals models incorporating the asymmetry in gain and loss recognition timelier loss recognition or conditional conservatism offer a substantial specification improvement explaining substantially more variation in accruals than equivalent linear specifications conversely conventional linear accruals models by omitting the loss recognition asymmetry exhibit substantial attenuation bias and offer a comparatively poor specification of the accounting accrual process linear specifications also understate the ability of current earnings to predict future cash flows these findings have implications for our understanding of accrual accounting and conservatism as well as for researchers estimating discretionary accruals earnings management and earnings quality

secondary job holding in germany since 2003 the number and ratio of multiple jobholders has more than doubled although the german labour market has been experiencing a strong and sustained upswing this study analyses multiple j

estimation and empirical properties of a firm year measure of accounting conservatism we estimate a firm year measure of accounting conservatism examine its empirical properties as a metric and illustrate applications by testing new hypotheses that shed further light on the nature and effects of conservatism the results are consistent with the measure c score capturing variation in conservatism and also predicting asymmetric earnings timeliness at horizons of up to 3 years ahead cross sectional hypothesis tests suggest firms with longer investment cycles higher idiosyncratic uncertainty and higher information asymmetry have higher accounting conservatism event studies suggest increased conservatism is a response to increases in information asymmetry and idiosyncratic uncertainty

assessing the relative merits of development charges and transferable development rights in an uncertain world traditionally regulatory instruments have been used to achieve planning objectives however emerging market based policy instruments such as transferable development rights a quantity based app

the role of dutch auctions and lotteries in shaping the art market s of 17th century holland abstract this article examines institution formation in the nascent art markets of 17th century amsterdam and haarlem in response to external and internal pressures on artists guilds in amsterdam poor quality imports often copies were touted as originals and sold in clandestine dutch auctions the deliberate confusion about quality imparted to the market features similar to those of akerlof s lemons model and a need for quality guarantees gave occasion to dealers in haarlem and other towns demand was viewed as fixed and guilds toughened restrictions on the supply side dissenters successfully used lotteries to show that demand can be engendered promotion was to become a key feature of later art markets

hierarchies markets and power in the economy an economic perspective this paper adopts the transaction cost economics perspective for purposes of examining hierarchies markets and power in the economy transaction cost economics works out of an economizing perspective in which markets and hierarchies are alternative modes of governance and the object is to ascertain which transactions go where and why the role of power in this setup is strictly limited partly because power tends to be myopic transactions are not examined in their entirety and partly because it is tautological power needs to be operationalized whereupon the refutable implications that accrue to this perspective can be derived copyright 1995 by oxford university press

ceo optimism and forced turnover abstract we show theoretically that optimism can lead a risk averse chief executive officer ceo to choose the first best investment level that maximizes shareholder value optimism below above the interior optimum leads the ceo to underinvest overinvest hence if boards of directors act in the interests of shareholders ceos with relatively low or high optimism face a higher probability of forced turnover than moderately optimistic ceos face using a large sample of turnovers we find strong empirical support for this prediction the results are consistent with the view that there is an interior optimum level of managerial optimism that maximizes firm value

analysing agricultural land markets as organisations an empirical study in poland abstract analysing markets as organisations governed by a network of relational contracts that establish rules for market participants increases our understanding of exchange processes on the basis of three land market case studies in poland it is shown that market rules are shaped by the identity as well as constellation of actors and are designed to serve the common objectives of the members of the organisation market by decreasing transaction costs and protecting group interests

determinants of satisfaction for entrepreneurs this study considers the extent to which entrepreneurs are satisfied with their businesses in their third year of business ownership entrepreneurial satisfaction might be viewed as a basic measure of performance it may bear upon decisions by individual entrepreneurs about whether to invest more time and money whether to cut back or whether to close down it may also influence whether entrepreneurs work effectively with their customers and employees for researchers the investigation of why in particular settings some entrepreneurs may be more satisfied than others may aid in the interpretation of past research which has used this as a performance measure this research draws upon a theoretical framework used in investigations of employee satisfaction called discrepancy theory it suggests that individual satisfaction is determined in part by whether there is a gap between actual rewards or performance and the individual s goals or expectations in this research it was hypothesized that entrepreneurs emphasizing primarily noneconomic goals such as doing the work they wanted to do would have higher satisfaction when the business was experiencing lower levels of performance for higher levels of performance there would be no difference in essence the satisfaction of those emphasizing economic goals would vary more with economic performance a related hypothesis was that for this sample of start up firms many of which would be experiencing low levels of performance those emphasizing noneconomic goals would have higher average levels of satisfaction this was based upon the expectation that many start up firms would be experiencing marginal performance so that the gap between goals and performance would be greater for economically oriented entrepreneurs the research also focused upon expectations because one aspect of discrepancy theory suggests that satisfaction decreases if there is a gap between expectations and performance accordingly it was hypothesized that controlling for performance entrepreneurs with higher initial expectations would subsequently have lower levels of satisfaction previous research suggests that membership in particular demographic groups may influence expectations this led to hypotheses that older entrepreneurs female entrepreneurs and minority entrepreneurs would have lower levels of initial expectations this in turn may influence later satisfaction thus it was hypothesized that controlling for performance entrepreneurs in each of these groups would have higher satisfaction because their initial expectations would be lower the study utilized a sample of 287 entrepreneurs who were followed over a 3 year period the data on predictors of satisfaction were gathered in year 1 when the average owner had been in business for 11 months the satisfaction measures were gathered 2 years later by that time there should have been some stabilization in the routines of the business and the entrepreneur could reflect upon historic performance and experiences in judging the extent to which business ownership had been satisfying the data were analyzed primarily using path analysis in which it was hypothesized that certain variables would have both direct and indirect effects upon satisfaction it was found that the satisfaction of entrepreneurs emphasizing economic goals was not more sensitive to economic performance at least within the range of performance considered in this sample for this group of firms many of which appeared to be experiencing marginal performance those emphasizing noneconomic goals did express higher levels of satisfaction it had been expected that those with higher initial expectations would later be less satisfied because they would have a greater expectation performance gap however the opposite was found those who were more optimistic initially were more satisfied later even when controlling for performance demographic influences on initial expectations were examined contrary to expectations none of the demographic traits was significantly related to initial assessment of likelihood of success older entrepreneurs women entrepreneurs and minority entrepreneurs were just as optimistic as those in other groups the relationship between membership in these demographic groups and later satisfaction was also examined no significant relationships were found for older entrepreneurs and minority entrepreneurs however there was some evidence p 07 that women entrepreneurs were more satisfied with business ownership two of the most interesting findings were those related to initial expectations and to women entrepreneurs contrary to discrepancy theory those who had higher initial expectations were later more satisfied not less this may suggest as staw and ross 1985 found in a longitudinal study of employee satisfaction that attitudes are in part a function of stable individual traits those who had a positive view of their initial prospects later viewed the experience of business ownership more favorably regardless of subsequent performance for women entrepreneurs the higher levels of satisfaction may reflect a view that they have fewer attractive alternatives it may also be that they discover greater relative satisfaction from the day to day aspects of business ownership for entrepreneurs and their advisors the findings suggest that particular goals attitudes and backgrounds are likely to be associated with greater satisfaction this may influence whether entrepreneurs stay with marginal businesses for researchers the study provides insight into discrepancy theory by considering its application to entrepreneurs rather than the hired employees normally studied in addition subjective measures of performance such as satisfaction have often been used in previous research on entrepreneurial performance this study casts light on why in particular settings some entrepreneurs may be more satisfied than others

taxes institutions and innovation theory and international evidence we develop an international model of the design of institutions for regulating innovative activities of private corporations informational limitations faced by the social planner preclude complete contracting with private firms corporate innovation creates positive and negative externalities the social planner in each country takes into account the legal system in place and designs an umbrella of institutions that include a menu of organizational forms liability structures corporate taxes and subsidies we show that limited liability may be accompanied by excessive innovation however when the nonmonetized benefits are very high private firms may be too conservative in innovation policies firms choose their organizational form and level of innovation consistent with private optimality with the optimal institutional design for each country we demonstrate that private innovation choices are aligned with social optimality in particular we show that the optimally designed corporate tax rate in each country is a decreasing function of its legal effectiveness using data from 63 countries over 2003 2018 we document supporting evidence mncs can take advantage of differential liability and corporate tax structures across national boundaries to circumvent institutional design constraints however when mncs generate positive externalities to host countries their governments may provide subsidies and incentives

endogenous overconfidence in managerial forecasts abstract we examine whether attribution bias leads managers who have experienced short term forecasting success to become overconfident in their ability to forecast future earnings importantly this form of overconfidence is endogenous and dynamic we also examine the effect of this cognitive bias on the managerial credibility consistent with the existence of dynamic overconfidence managers who have predicted earnings accurately in the previous four quarters are less accurate in their subsequent earnings predictions these managers also display greater divergence from the analyst consensus and are more precise lastly investors and analysts react less strongly to forecasts issued by overconfident managers

internalization and the mne a note on the spread of ideas this paper examines the reasons for the impact of buckley and casson s the future of the multinational enterprise 1976 on research in international business ib earlier work concentrated on ownership specific advantages or locational determinants rather than the central concept of internalization the few exceptions were incomplete or not well known internalization as applied to the mne spread rapidly because of the appeal to ib researchers of an analytically powerful idea that was based on institutional economics and involved an accessible methodology the spread was also helped by the parallel growth of transaction costs in the domestic theory of the firm and the publication activity of the authors and their associates

assessing the employment effects of vocational training using a one factor model matching estimators use observed variables to adjust for differences between groups to eliminate sample selection bias when minimum relevant information is not available matching estimates are biased if access to data on usually unobserved factors that determine the selection process is unavailable other estimators should be used this study advocates the one factor control function estimator that allows for unobserved heterogeneity with factor loading technique treatment effects of vocational training in sweden are estimated with mean and distributional parameters and then compared with matching estimates the results indicate that unobservables slightly increase the treatment effect for those treated

quota prices as indicators of comparative advantage in supply managed industries the canadian farm products agencies act 2012 requires that comparative advantage be used to guide the allocation of new quota under supply management this requirement however has not been met in practice agricultural economists have proposed several ways of making this legal requirement operational we review and evaluate these proposed approaches and find that quota prices are the only direct measure of comparative advantage in supply managed industries we develop an agent based general equilibrium model of quota exchange to illustrate the use of quota prices as indicators of comparative advantage our approach complements the proposal by meilke 2009 to use quota prices as indicators of comparative advantage in supply managed industries and also addresses the concerns of larue and gervais 2008 that quota prices may not be theoretically consistent with comparative advantage we also discuss potential practical challenges of using quota prices as indicators of comparative advantage in the canadian supply managed industries finally we provide an example of calculating provincial shares of new quota using recent quota price data according to two prototype decision rules this abstract was borrowed from another version of this item

inventing new institutions the design perspective we live in an era of significant changes in the prevailing economic institutions to a considerable extent in the direction of decentralization in the west u s u k france steps have been taken toward deregulation as well as privatization or denationalization of public enterprises in the people s republic of china in hungary and most recently in the soviet union reforms have been carried out or proposed to move from command to market guidance of economic processes see for instance kornai earlier periods witnessed trends of the opposite type establishment of regulatory agencies nationalization of privately owned enterprises and the substitution of decisions made by central organs of the state for market processes hence although the early development of the design theory owes a great deal to the famous exchanges between hayek lange lerner and mises recent events alone justify interest in problems of design but design problems are not limited to those involving the grand systems for national economies indeed some of the most valuable insights derive from an analysis of the internal problems of managing firms issues raised by vertical or lateral integration of previously independent units as well as the comparison of performance characteristics of price versus quantity guidance of production in integrated firms or other economic organizations some institutional changes may be viewed as purely evolutionary phenomena induced as analyzed by ruttan by changes in external factors technological political or other but often these changes contain an important element of conscious design and produce an institutional framework different from anything that existed before it may not be incorrect to view the new institutions as invented although an invention involves a creative act the science of economics should provide an analytical framework to aid in the design of new institutions or systems traditional economics does not do this but two recent streams of thought especially if integrated can be useful for this purpose the two are general theories primarily normative in spirit of resource allocation mechanisms and more specialized theories mostly intended to explain observed phenomena of the organizational structures of economic institutions especially firms markets and hierarchies our purpose here is to indicate how these two approaches can be synthesized in order to strengthen each other to accomplish this we consider against the background of the general theory of mechanisms some of the problems raised by the specialized models

pigou and coase a mathematical reconciliation abstract this paper provides a rigorous statement of the coase theorem and establishes a formal equivalence between abstract allocative mechanisms attributed to coase and pigou the model proceeds from output functions that reduce to production functions in special cases thereby capturing effects that are obscured by conventional production and cost functions the model also emphasizes fundamental differences in the characteristics of inputs particularly land that are implied in the construction of externality stories finally the model embodies a clear distinction between local e g nuisance and global e g pollution externalities the coase theorem as stated is valid only in the former case

in work benefits in the united states the earned income tax credit the earned income tax credit eitc is or soon will be the largest cash or nearcash benefit provided to low income households in the united states the eitc is a credit on the federal income tax available to working poor families with children in i994 the credit equals 26 3 of earned income wages salaries self employment income and farm income for taxpayers with one child up to an earned income of 7 750 hence the maximum benefit is 2 038 for families with one child because benefits increase with earned income up to a certain point the eitc seems to encourage work and therefore is a popular antipoverty programme taxpayers with one child and incomes above 7 750 but below i i ooo receive the maximum benefit taxpayers with one child whose incomes exceed i i ooo are in the phase out range of the credit their 2 038 credit is reduced by i5 98 cents for every dollar of income earned over and above i i ooo taxpayers with two or more children are entitled to a slightly larger credit 2 528 or 30o0 0 of 8 425 which is phased out at a i 7p68 0 rate a small credit of at most 306 was available to childless taxpayers betnween the ages of 25 and 64 for the first time in i 994 unlike most credits and deductions in the federal individual income tax system the eitc is refundable that is if the amount of the credit exceeds what the taxpayer owes he or she receives a payment from the us treasury for the difference the eitc was adopted in i975 and was originally promoted as a way to relieve the burden of the social security payroll tax on low wage working parents 2 the original eitc equaled io 0 of earnings up to a maximum credit of 400 for taxpayers with children and was phased out at a rate of io cents per dollar of earnings or adjusted gross income whichever was higher for incomes between 4 ooo and 8 ooo the eitc has been increased many times since i975 though the largest changes occurred in i990 and i993 in i996 when the i993 legislative changes are fully phased in the credit rate will be 40 0 of earnings for families with two or more children and 34 0 for families

the association between outside directors institutional investors and the properties of management earnings forecasts we investigate the relation of the board of directors and institutional ownership with the properties of management earnings forecasts we find that firms with more outside directors and greater institutional ownership are more likely to issue a forecast and are inclined to forecast more frequently in addition these forecasts tend to be more specific accurate and less optimistically biased these results are robust to changes specification granger causality tests and simultaneous equation analyses the results are similar in the pre and post regulation fair disclosure reg fd eras additional analysis suggests that concentrated institutional ownership is negatively associated with forecast properties this association is less negative in the post reg fd environment which is consistent with reg fd reducing the ability of firms to privately communicate information to select audiences

markets and firms transaction costs versus strategic innovation abstract this paper takes the view that the firm is a way of organizing learning and a source of capabilities for innovative moves this requires seeing the firm s problem as one not only of forming appropriate internal organizing structures but also of competing in an environment where new problems regularly emerge as a result of strategic outcompeting moves by rivals market and firm are shown to interact rather than being independent alternatives this altered perspective is given sharper definition by comparing and contrasting it with the results of transactions cost analysis the newer capabilities approach to the firm and the game theoretic literature on coordination and cooperation

theories of institutions and economic reform in africa abstract the paper presents and critically examines the theories of institutions that can be used as a guide to economic reform in africa three approaches to institutions are initially discussed the model of structural adjustment new institutional economics and the old institutionalist tradition five institutions related to the development of markets in africa are examined from the three perspectives the institutions include property rights including their role in agriculture money and financial institutions prices and markets firms and industrial organization and markets and states the main conclusion of the paper is that structural adjustment due to its neoclassical roots is basically ainstitutional and therefore ill equipped to promote the development of markets in africa while new institutionalism provides interesting insights it is also limited by its neoclassical economic foundations thus if african governments desire to promote market reform they would be best advised to consult the old institutionalist literature particularly the very interesting recent work of proponents of this tradition

2 the institutional structure of production 1 prize lecture to the memory of alfred nobel december 9 1991 this abstract was borrowed from another version of this item

overconfidence compensation contracts and capital budgeting a risk averse manager s overconfidence makes him less conservative as a result it is cheaper for firms to motivate him to pursue valuable risky projects when compensation endogenously adjusts to reflect outside opportunities moderate levels of overconfidence lead firms to offer the manager flatter compensation contracts that make him better off overconfident managers are also more attractive to firms than their rational counterparts because overconfidence commits them to exert effort to learn about projects still too much overconfidence is detrimental to the manager since it leads him to accept highly convex compensation contracts that expose him to excessive risk

appropriation violent enforcement and transaction costs a critical survey this paper focuses on the extension of transaction costs to appropriative activity and coercive power in the property rights approach it has been argued that including the costs of appropriation and violent enforcement in transaction costs is based on the assumption that coaseian bargaining can be extended to any institutional scenario i e voluntary as well as coercive exchange however voluntary transactions cannot capture the logic of coercive power this means that the assumption of an efficient political market is not valid and that the political coase theorem lacks the logical consistency to provide a cornerstone for political theory

do only tax incentives matter labor supply and demand responses to an unusually large and salient tax break abstract i explore labor supply responses to an unusually large and salient notch generated by the mini job program in germany using administrative data i document three findings first despite the unusually large magnitude of incentives earnings elasticities are modest even after accounting for frictions second the observed response cannot be fully attributed to labor supply alone rather the observed outcomes are highly dependent on the availability of jobs and so are strongly influenced by labor demand incentives third i show that these firm incentives are likely driven by the fact that mini job workers receive lower fringe benefit payments

the market for preferences learning processes are widely held to be the mechanism by which boundedly rational agents adapt to environmental changes we argue that this same outcome might also be achieved by a different mechanism namely specialisation and the division of knowledge which we here extend to the consumer side of the economy we distinguish between high level preferences and low level preferences as nested systems of rules used to solve particular choice problems we argue that agents while sovereign in high level preferences may often find it expedient to acquire in a pseudo market the low level preferences in order to make good choices when purchasing complex commodities about which they have little or no experience a market for preferences arises when environmental complexity overwhelms learning possibilities and leads agents to make use of other people s specialised knowledge and decision rules

how informed are actively trading institutional investors evidence from their trading behavior before a break in a string of consecutive earnings increases we examine whether transient institutional investors i e institutions that trade actively to maximize short term profits have information that allows them to predict a break in a string of consecutive quarterly earnings increases and thereby avoid the economically significant negative stock price response associated with the break announcement we show that transient institutions predict the break at least one quarter in advance of the break quarter we also provide evidence that is consistent with transient institutions obtaining information regarding the impending break from private communications with management

viewpoint on the generalizability of lab behaviour to the field abstract we can think of no question more fundamental to experimental economics than understanding whether and under what circumstances laboratory results generalize to naturally occurring environments in this paper we extend levitt and list 2006 to the class of games in which financial payoffs and doing the right thing are not necessarily in conflict we argue that behaviour is crucially linked to not only the preferences of people but also the properties of the situation by doing so we are able to provide a road map of the psychological and economic properties of people and situations that might interfere with generalizability of laboratory result from a broad class of games

libertad para competir en el mercado recursos procesos y resultados freedom to compete in the market resources processes and resultsherein we analyze three concepts of market competition although the different aspects of freedom can be appreciated in each one of them they make an especial contribution to some of them we propose that the neoclassical general equilibrium chiefly contributes to the discussion of the outcomes of an economic activity the barriers to entry approach calls for a study of the resources necessary to compete and the competition as a process approach emphasizes the competitive activity itself moreover as we move from the first onwards enriching the meaning of competition the possibility of losing opportunities to participate in the market becomes more evident entry and exit are part of the competitive process each concept of competition responds to theories that specify or allude to certain types and distribution of economic agents freedoms to manoeuvre throughout this study we often quote amartya sen with the purpose of buildingbridges between the study of competition and the approach of development as freedom

identifying effect heterogeneity to improve the efficiency of job creation schemes in germany previous empirical studies of job creation schemes in germany have shown that the average effects for the participating individuals are negative however we find that this is not true for all strata of the population identifying individual characteristics that are responsible for the effect heterogeneity and using this information for a better allocation of individuals therefore bears some scope for improving programme efficiency we present several stratification strategies and discuss the occurring effect heterogeneity our findings show that job creation schemes do neither harm nor improve the labour market chances for most of the groups exceptions are long term unemployed men in west and long term unemployed women in east and west germany who benefit from participation in terms of higher employment rates

the effectiveness of qualification measures for employed workers an evaluation study for saxony this article investigates whether and to what extent employment policy measures co financed by the european social fund in germany meet their objective specifically it is analysed whether qualification programs for employed workers in the german state of saxony were effective in terms of employment protection to this end a control function approach is implemented which utilizes a unique firm level dataset this model explicitly accounts for unobserved heterogeneity between participating and nonparticipating companies by modelling the participation decision process our results suggest a positive effect of program participation however this positive treatment effect varies considerably across different sub groups of the treatment as well as the comparison group

the effects of political connections and state ownership on corporate litigation in china abstractwe examine the effects of corporate lawsuits in china and find that litigation announcements depress the stock prices of both defendant and plaintiff firms financially distressed defendants suffer lower stock returns we find that politically connected defendants are favored in the judicial process they have higher stock returns and are more likely to appeal against adverse outcomes and to obtain a favorable appeal result state controlled defendants fare better than privately controlled defendants when it comes to appeals but do not have higher stock returns the evidence suggests that there is bias in the judicial process

the ontology of economic power in capitalism mainstream economics and marx mainstream economics conceives power to be incompatible with perfect competition this conception i argue derives from its deductivist method and the empirical realist ontology that it presupposes following marx i show that capitalism constantly reproduces asymmetrical constraints on classes of individuals independent of the market form my ontological argument is rooted in the philosophy of critical realism my conclusion is that the dichotomy power competition is ontologically untenable if capitalist relations necessarily involve power it is not simply because neoclassical competition does not exist in reality as radical mainstream economists suggest but rather because capitalism altogether is a system of power

the theory of the firm as governance structure from choice to contract the propositions that organization matters and that it is susceptible to analysis were long greeted by skepticism by economists one reason why this message took a long time to register is that it is much easier to say that organization matters than it is to show how and why the prevalence of the science of choice approach to economics has also been an obstacle as developed herein the lessons of organization theory for economics are both different and more consequential when examined through the lens of contract this paper examines economic organization from a science of contract perspective with special emphasis on the theory of the firm

earnings trend and performance relative to benchmarks how consistency influences their joint use archival research shows that the market reacts to earnings trend as well as to earnings performance relative to analysts forecasts i e benchmark performance we conduct four experiments to investigate how and why investors react to these two measures when both are available over multiple time periods our results show that investors rely on an earnings measure only when it is consistent over time when both measures are consistent over time investors use them in an additive fashion suggesting that they view them as providing different information about the firm further tests show that investors believe that earnings trend and benchmark performance both provide information about a firm s future prospects and management s credibility although judged future prospects fully explain the effect of earnings trend on investor judgments neither judged future prospects nor management credibility completely explains the effect of benchmark performance our study has implications for firm managers and researchers

analyst forecast consistency we show empirically that analysts who display more consistent forecast errors have greater ability to affect prices and that this effect is larger than that of stated accuracy these results lead to three implications first consistent analysts are less likely to be demoted and are more likely to be nominated all star analysts second analysts strategically deliver downward biased forecasts to increase their consistency if at the expense of stated accuracy finally the benefits of consistency and of lowballing accuracy are increasing decreasing in institutional investors presence

work incentives and in work benefit reforms a review in work benefit reforms seek to reduce poverty and promote employment among low income families using evidence from similar policies in the usa and canada this paper reviews the likely impact of recent uk reforms the focus is on employment and hours in particular the paper examines the effectiveness of the new working families tax credit in the uk in increasing employment among low income families it presents evidence suggesting modest increases in employment for single parents and workerless married couples with children but with some offsetting reductions in employment in two earner couples with young children

allocation and pricing at the water district level efficient water pricing schemes are introduced for nonprofit water agencies where members have property rights based upon historical usage the existing average cost rate design is compared with the proposed designs active trading and passive trading both schemes lead to efficiency but passive trading has operational advantages since it generates less transaction costs than active trading block rate pricing is shown to be suboptimal and inferior to passive trading an example from the israeli water economy is used as an empirical illustration

the contractual nature of the firm for their helpful comments i am grateful to armen a alchian yoram barzel keith leffler john s mcgee and dean worcester 1 ronald h coase the nature of the firm 4 economica 386 1937 the paper however was written several years earlier see note 3 infra 2 the social sciences citation index provides the following information breaking down the period of 1966 80 into three five year periods the total citations of coase s firm paper for each subperiod are 1966 70 17 citations 1971 75 47 citations and 1976 80 105 citations

naturally occurring markets and exogenous laboratory experiments a case study of the winner s curse we examine the relevance of experimental findings from laboratory settings that abstract from the field context of the task that theory purports to explain using common value auction theory as our guide we identify naturally occurring settings in which one can test the theory experienced agents bidding in familiar roles do not fall prey to the winner s curse yet experienced agents fall prey to the winner s curse when bidding in an unfamiliar role we conclude that the theory predicts field behaviour well when one is able to identify naturally occurring field counterparts to the key theoretical conditions

econometrics of the basu asymmetric timeliness coefficient and accounting conservatism a substantial literature investigates conditional conservatism defined as asymmetric accounting recognition of economic shocks news and how it depends on various market political and institutional variables studies typically assume the basu 1997 asymmetric timeliness coefficient the incremental slope on negative returns in a piecewise linear regression of accounting income on stock returns is a valid conditional conservatism measure we analyze the measure s validity in the context of a model with accounting income incorporating different types of information with different lags and with noise we demonstrate that the asymmetric timeliness coefficient varies with firm characteristics affecting their information environments such as the length of the firm s operating and investment cycles and its degree of diversification we particularly examine one characteristic the extent to which unbooked information such as revised expectations about rents and growth options is independent of other information and discuss the conditions under which a proxy for this characteristic is the market to book ratio we also conclude that much criticism of the basu regression misconstrues researchers objectives

cash flow asymmetry causes and implications for conditional conservatism research earnings asymmetric timeliness captures both accrual and operating cash flow cfo asymmetric timeliness because recognition of operating cash flows does not reflect differential verification thresholds for recognizing unrealized gains versus losses cfo asymmetry adds noise or bias to tests of conditional conservatism we show that cfo asymmetry is predictable in the cross section and varies systematically with life cycle characteristics removing cfo from earnings and using accruals based measures of asymmetric timeliness eliminates several biases that prior studies have attributed to other sources moreover accrual asymmetric timeliness varies in the cross section as theory predicts going forward we recommend researchers use accruals based asymmetric timeliness measures when testing for conditional conservatism

confidence enhanced performance there is ample evidence that emotions affect performance positive emotions can improve performance while negative ones may diminish it for example the fears induced by the possibility of failure or of negative evaluations have physiological consequences shaking loss of concentration that may impair performance in sports on stage or at school there is also ample evidence that individuals have distorted recollection of past events and distorted attributions of the causes of successes of failures recollection of good events or successes is typically easier than recollection of bad ones or failures successes tend to be attributed to intrinsic aptitudes or own effort while failures are attributed to bad luck in addition these attributions are often reversed when judging the performance of others the objective of this paper is to incorporate the first phenomenon above into an otherwise standard decision theoretic model and show that in a world where performance depends on emotions biases in information processing enhance welfare

the political economy of technological innovation and employment building on the varieties of capitalism thesis of comparative advantages in technological innovation the authors theorize the effect of sociopolitical coordination from a dynamic perspective and then apply the dynamic theories to the political economy of employment in comparison to the existing employment literature situated in a constant technology context based on cross sectional survey as well as pooled time series aggregate data the authors argue that new technologies not only increase productivity through process innovation but also generate rents through product innovation by preventing opportunistic behavior between firms sociopolitical coordination intensifies reciprocal sharing of innovation which increases productivity returns but dilutes rents leading to comparative advantage in process over product innovation because process innovation is labor saving but product innovation is employment friendly interfirm coordination further leads to comparative disadvantage in job creation from in

evaluating the german mini job reform using a natural experiment increasing work incentives for people with low income is a common topic in the policy debate across european countries the mini job reform in germany had a similar motivation we carry out an ex post evaluation to identify the short run effects of this reform our identification strategy uses an exogenous variation in the interview months in the socio economic panel study soep which allows us to distinguish groups that are affected by the reform from those who are not to account for seasonal effects we additionally use a difference in differences did strategy descriptives show that there is a post reform increase in the number of mini jobs however we show that this increase cannot be causally related to the reform since the short run effects are very limited only single men seem to react immediately and increase secondary job holding

self confidence and personal motivation the maintenance and enhancement of self esteem has always been identified as a fundamental human impulse philosophers writers educators and of course psychologists have all emphasized the crucial role played by self image in motivation affect and social interactions the aim of this chapter is to bring these concerns into the realm of economic analysis and show that this has important implications for how agents process information and make decisions conversely the tools of economic modelling can help shed light on a number of apparently irrational behaviours documented by psychologists