the optimality of consumer stockpiling strategies the ability of consumers to make rational sequential purchase quantity decisions under imperfect knowledge about future prices in a product category is explored normatively a consumer should make such decisions by defining a series of reservation prices which define how many buying periods supply should be held given an observed price an experiment is reported in which consumers make sequential purchase quantity decisions under variations in the shape of the distribution of prices and its trend over time results suggest a number of systematic deviations from optimality when facing stationary uniform and bimodal price distributions for example subjects tend to systematically overbuy when small purchases are called for and underbuy when large purchases are called for likewise when facing ascending or descending series behavior is the opposite of that predicted by the normative analysis there is an increasing tendency to defer purchases given increasing prices and accelerate purchases given descending prices an explanation for the findings in terms of a prospect theory type loss function in expenditures is offered

an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

time preferences and mortgage choice abstractmortgage decisions have important consequences for consumers lenders and the state of the economy more generally mortgage decisions are also prototypical of consumer financial choices that involve a stream of expenditures and consumption occurring across time the authors use heterogeneity in time preferences for both immediate present bias and long term outcomes to explain a sequence of mortgage decisions including mortgage choice and the decision to abandon a mortgage the authors employ an analytic model and a survey of mortgaged households augmented by zip code level house price and foreclosure data the model suggests and data confirm that consumers with greater present bias and long term discounting tend to choose mortgages that minimize up front costs however greater present bias decreases homeowners willingness to abandon a mortgage locking them into the contract long term patience increases mortgage abandonment this reversal across mortgage decisions is difficult for alternati

a review of wta wtp studies abstract willingness to accept wta is usually substantially higher than willingness to pay wtp these constructs have been studied for roughly 30 years and with a wide variety of goods this paper reviews those studies we find that the less the good is like an ordinary market good the higher is the ratio the ratio is highest for non market goods next highest for ordinary private goods and lowest for experiments involving forms of money a generalization of this pattern holds even when we account for differences in survey design ordinary goods have lower ratios than non ordinary ones we also find that ratios in real experiments are not significantly different from hypothetical experiments and that incentive compatible elicitation yields higher ratios

greenhouse policy persuasion towards a positive theory of discounting the climate future abstract the climate policy issue is in a state where different visions or proposals compete with one another in the political arena the success of such a vision or proposal largely depends on the success of its proponents in persuading the public or a yet undecided ultimate authority of its merits this essay identifies a discounting related ambiguity in cost benefit analyses of climate change making two competing visions and proposals legitimate by placing the induced opportunity for greenhouse policy persuasion in a political economy context it is shown how visionaries and lobbyists can exploit human time preferences for the purpose of greenhouse policy persuasion

deferring versus expediting consumption the effect of outcome concreteness on sensitivity to time horizon abstract this work examines consumers preferences for consumption timing specifically the authors examine how temporal framing deferring versus expediting of a decision moderates the sensitivity of consumers pattern of discounting to changes in time horizon the results from three experiments show greater decline in consumers discount rates with time horizon i e greater present bias when they defer than when they expedite consumption these results are robust to using monetary and nonmonetary outcomes as well as to different time horizons months days the authors further demonstrate that the different levels of mental representations concreteness triggered by the two decision frames moderate this difference in sensitivity

outcome signs question frames and discount rates this study explains why gain loss discount rate differences reported in previous studies cannot be attributed to outcome sign alone but rather must be associated with particular outcome sign question frame combinations to do so it extends loewenstein s 1988 framing model of intertemporal choice to negative outcomes and uses the resulting predictions to interpret and integrate the results of three previous studies comparing subjective discount rates thaler 1981 loewenstein 1988 benzion et al 1989 the new framework reveals previously unidentified linkages among outcome signs question frames and discount rates to investigate whether losses and gains are in fact discounted differently an experiment is conducted that includes a neutral frame intertemporal choice scenario no proposed change in outcome timing for each outcome sign the results show that subjective discount rates vary in a predictable way according to the outcome sign and question frame combination examined

time preference the discounted utility model and health the constant rate discounted utility model is commonly used to represent intertemporal preferences in health care program evaluations this paper examines the appropriateness of this model and argues that the model fails both normatively and descriptively as a representation of individual intertemporal preferences for health outcomes variable rate discounted utility models are more flexible but still require restrictive assumptions and may lead to dynamically inconsistent behaviour the paper concludes by considering two ways of incorporating individual intertemporal preferences in health care program evaluations that allow for complementarity of health outcomes in different time periods

subadditivity patience and utility the effects of dividing time intervals abstract previous work has demonstrated that time discounting is subadditive individuals exhibit more impatience evaluating a delay as divided into sub intervals this paper argues that subdivision affects both components of intertemporal choice the utility function as well as the intertemporal discount function in my first experiment i demonstrate that differential concavity of utility for gains and convexity for losses implies that the discounting of losses is even more subadditive than the discounting of gains individuals display even more relative impatience over divided time intervals for negative amounts of money than for positive amounts of money my second experiment utilizes alternative elicitation methods which impose an intertemporal status quo to highlight these utility effects subadditivity is stronger when delaying an early gain than for hastening a later gain the reverse pattern holds for losses discounting is more subadditive when hastening a later loss than for delaying an earlier loss

contracting theory and accounting abstract this paper reviews agency theory and its application to accounting issues i discuss the formulation of models of incentive problems caused by moral hazard and adverse selection problems i review theoretical research on the role of performance measures in compensation contracts and i compare how information is aggregated for compensation purposes versus valuation purposes i also review the literature on communication including models where the revelation principle does not apply so that nontruthful reporting and earnings management can take place the paper also discusses capital allocation within firms including transfer pricing and cost allocation problems

hypothetical intertemporal consumption choices the paper extends and replicates part of the analysis by barsky juster kimball and shapiro 1997 which exploits hypothetical choices among different consumption streams to infer intertemporal substitution elasticities and rates of time preference we use a new and much larger dataset than barsky et al furthermore we estimate structural models of intertemporal choice while parameterizing the parameters of interest as a function of relevant individual characteristics we also consider lobehaviorallc extensions like habit formation models with habit formation appear to be superior to models with intertemporally additive preferences

an empirical analysis of risk incentives and the delegation of worker authority the authors empirically test prendergast s 2002 theory that incorporates the delegation of worker authority into the principal agent model to explain the lack of consistent empirical support for a tradeoff between risk and incentives using data from the 1998 british wers the authors investigate whether there is 1 evidence of a risk incentives tradeoff as predicted by the principal agent model 2 evidence of a positive relationship between incentive pay and the delegation of worker authority 3 evidence of a positive relationship between risk and authority 4 support for the main testable implication of prendergast s model namely that the evidence favoring a risk incentives tradeoff should strengthen when authority controls are added to the empirical model the answers are affirmative for all four questions thereby providing evidence clarifying the relationship between risk and incentive pay and how managers optimally bundle incentive pay and the delegation of worker decision rights to cope with

executive effort and selection of risky projects this article examines the incentives of executives to adopt risky projects the agency problem considered is that of motivating the executive to expend effort to generate information about the profitability of projects and to select the best project conditional upon the information that his effort generates we show that the executive and the principal will not always agree regarding which project is best we provide conditions under which this conflict of interest leads from the principal s perspective to either an underinvestment or an overinvestment in risky projects

the effect of adoption of long term performance plans on stock prices and accounting numbers long term performance plans are theoretically adopted to better align the interests of the managers and stockholders by redirecting managerial decision making toward the longterm performance of the corporation this study reports significant positive excess returns around the announcement of performance plan adoption which is consistent with the view that such plans would reduce the agency problem in addition this study finds an association between the adoption of long term performance plans and subsequent growth in profitability suggesting that long term performance plans may have been successful in motivating an enhancement in the accounting measures of profitability used to reward managers under the plan finally the excess returns around the announcement of performance plan adoption are found to be positively correlated with subsequent change in growth of earnings per share the most commonly used accounting performance measure

an analysis of the use of accounting and market measures of performance in executive compensation contracts prior research has provided useful insights into the structure of compensation plans and their incentive effects however one important limitation of these studies is the virtual absence of any cross sectional analyses of the attributes of compensation contracts 2 this absence is related in part to the problems associated with controlling for other factors that affect compensation that is compensation contracts are

the fragility of time time insensitivity and valuation of the near and far future we propose that the temporal dimension is fragile in that choices are insufficiently sensitive to it and second such sensitivity as exists is exceptionally malleable unlike other dimensions such as money which are attended by default to test this we axiomatize a constant sensitivity discount function and in four studies we show that the degree of time sensitivity is inadequate relative to the compound discounting norm and strongly susceptible to manipulation time sensitivity is increased by a comparative within subject presentation experiment 1 direct instruction experiment 3 and provision of a visual cue for time duration experiment 4 time sensitivity is decreased using a time pressure manipulation experiment 2 in each study the sensitivity manipulation has an opposite effect on near future and far future valuations increased sensitivity decreases discounting in the near future and increases discounting in the far future in contrast such sensitivity manipulations have little effect on the money dimension

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

changes in the distribution of household income in brazil the role of male and female earnings summary annual survey data spanning three decades and a non parametric technique for constructing counterfactual distributions are employed to analyze the relationship between earnings and the distribution of household income in brazil results show that significant changes in the structure of female earnings reflecting rising wages and participation rates had limited equalizing consequences but considerable poverty reducing effects these developments counterbalanced poverty increasing changes in the structure of male earnings a stable macroeconomic environment was associated with a consistent but a limited fall in inequality and a strong decline in poverty mainly related to rising earnings among women at the lower end of the household income distribution

implications for gaap from an analysis of positive research in accounting based on extant literature we review the positive theory of gaap the theory predicts that gaap s principal focus is on control performance measurement and stewardship and that verifiability and conservatism are critical features of a gaap shaped by market forces we recognize the advantage of using fair values in circumstances where these are based on observable prices in liquid secondary markets but caution against expanding fair values to financial reporting more generally we conclude that rather than converging u s gaap with ifrs competition between the fasb and the iasb would allow gaap to better respond to market forces

an empirical study on intertemporal decision making under risk this study compares time preference in the cases of certainty and risk we analyze both matching and choice behavior we find that violations of the stationarity axiom are restricted to matching behavior both for certainty and risk we also compare the discounting of certain and risky outcomes as well as the discounting of gains and losses in matching tasks certain outcomes are discounted more than risky ones we could not confirm these results in a choice task gains and losses are not found to be discounted at different rates

impatience incentives and obesity this paper explores the relationship between time preferences economic incentives and body mass index bmi using data from the 2006 national longitudinal survey of youth we rst show that greater impatience increases bmi and the likelihood of obesity even after controlling for demographic human capital occupational and nancial characteristics as well as risk preference next we provide evidence of an interaction

contracts without memory in multiperiod agency models abstract settings are considered in which optimal multiperiod contracts can have no memory i e where second period payments do not need to depend on first period outcomes if contracts have no memory a repeated agency game can be played myopically there are no gains to long term relationships conditions on preferences for a no memory contract are presented in an agency game with moral hazard on the act selection preference separability and domain additivity imply the existence of a no memory contract in a setting without moral hazard but with asymmetric information on the outcome domain additivity implies no memory

the valuation of the exponential function and implications for derived interest rates abstract this experimental study investigates subjects ability to value correctly the exponential function underlying the interest rate discounting relationship the results indicate that a valuation bias exists and its magnitude increases with the dimensions of time and the level of the interest rate the results imply that the misvaluation of the exponential function might be the source for the bias inherent in the derived implicit interest rates obtained in prior experimental studies of subjective interest rates

an empirical investigation of the relative performance evaluation hypothesis the principal agent framework has become a widely used paradigm in accounting and economics for analyzing issues in performance evaluation management control and the design of incentive systems while recent work in experimental economics has begun to examine empirically some of the underlying assumptions and implications of agency theory see baiman and lewis 1989 and kirby forthcoming few precise hypotheses have been tested using real world or naturally occurring data one exception has been the empirical investigation of the relative performance evaluation rpe hypothesis agency theory suggests that there are benefits associated with evaluating agents on the basis of their relative performances when the agents performances are affected by a common shock term e g see diamond and verrecchia 1982 and holmstrom 1979 1982 specifically a relative performance based contract can remove the common shock term from an agent s performance which enables a better evaluation of the agent s actions

uncertainty risk and incentives theory and evidence uncertainty has qualitatively different implications than risk in studying executive incentives we study the interplay between profitability uncertainty and moral hazard where profitability is multiplicative with managerial effort investors who face greater uncertainty desire faster learning and consequently offer higher managerial incentives to induce higher effort from the manager in contrast to the standard negative risk incentive trade off this learning by doing effect generates a positive relation between profitability uncertainty and incentives we document empirical support for this prediction this paper was accepted by wei jiang finance

the illusion of stability the brazilian economy under cardoso abstract this paper begins with a description of the main characteristics of brazil s real stabilization program and its initial success in eliminating inflation it then examines the use of the exchange rate to keep inflation in check and the problems which overvaluation created it also focuses on the structural desequilibria it faced and the various artifices that were used to deal with them but which ultimately led to a set of contradictions that brought about its collapse

myopic loss aversion and stock investments an empirical study of private investors abstract myopic loss aversion was suggested by benartzi and thaler 1995 as an explanation for the equity premium puzzle its main prediction is that loss averse investors who evaluate their investment performance too frequently and therefore often observe small losses on their stock portfolios would invest too little in equity we investigate the link between myopic loss aversion and actual investment decisions of individual investors using survey data our results are consistent with the predictions of benartzi and thaler higher myopic loss aversion is associated with lower stock investment as a share of total assets investors tend to evaluate their stock portfolio performance too often which contributes to the prevalence of myopic loss aversion the effect of myopia is most apparent when investors both evaluate their portfolios frequently and trade stocks regularly

an experimental test of the under annuitization puzzle with smooth ambiguity and charitable giving abstract in a life cycle model with a bequest motive we study the impact of smooth ambiguity aversion to uncertain survival probabilities on the optimal demand for annuities we implement a theory driven laboratory experiment first a subject s ambiguity attitude is elicited in a simple experimental setting able to make the smooth ambiguity model operational then in a two period annuity bequest decision problem the subject s bequest in the second period is presented as a donation to a previously chosen charity contingent to the subject being active after the first period in line with the theoretical predictions we find that ambiguity averse resp loving subjects invest less resp more in annuities than ambiguity neutral ones furthermore subjects contingent donation to the chosen charity increases in their investment in annuities only for sufficiently high levels of warm glow altruism

impact of firm performance expectations on ceo turnover and replacement decisions abstract our analysis suggests that boards focus on deviation from expected performance rather than performance alone in making the ceo turnover decision especially when there is agreement less dispersion among analysts about the firm s earnings forecast or there are a large number of analysts following the firm in addition our results suggest that boards are more likely to appoint a ceo that will change firm policies and strategies i e an outsider when forecasted 5 year eps growth is low and there is greater uncertainty more dispersion among analysts about the firm s long term forecasts

the timing of option repricing we investigate whether executive stock option repricings are systematically timed to coincide with favorable movements in the company s stock price for a sample of 236 repricing events we observe sharp increases in stock price in the 20 day period following the repricing date in addition repricing dates tend to either precede the release of good news or follow the release of bad news in the quarterly earnings announcements since information about stock option repricing is not generally released to the public around the repricing date these findings suggest that ceos opportunistically manage the timing of the option repricing date

decision making over time and under uncertainty a common approach this paper considers a number of parallels between risky and intertemporal choice we begin by demonstrating a one to one correspondence between the behavioral violations of the respective normative theories for the two domains i e expected utility and discounted utility models we argue that such violations or preference reversals are broadly consistent with three propositions about the weight that an attribute receives in both types of multiattribute choice specifically it appears that 1 if we add a constant to all values of an attribute then that attribute becomes less important 2 if we proportionately increase all values of an attribute or if we change the sign of an attribute from positive to negative then that attribute becomes more important the generality of these propositions as well as the constraints they would impose on separable representations of multiattribute preferences is discussed

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

anchors away the cost and benefits of brazil s devaluation abstract this paper analyzes the impact of brazil s devaluation in 1999 this event represents an abandonment of the exchange rate anchor which had been used as a stabilization plan since the introduction of the real plan in 1994 the reasons behind the abandonment of the exchange rate anchor are determined as well as the explanation for its benign impact

the investment opportunity set and accounting procedure choice abstract this paper provides evidence on the cross sectional relation between firms investment opportunities their debt and compensation contracts their size and financial leverage and their accounting procedure choices this evidence is important because previous studies hypothesize that the link between firms investment opportunities and their accounting choices helps explain extant results on the size debt equity and bonus plan hypotheses however while i find that firms investment opportunities do affect the nature of their contracts i also find that the traditional explanations for accounting choice are important after controlling for the effects of the investment opportunity set

real investment implications of employee stock option exercises this paper examines a real cost of awarding employee stock options based on the observation that managers are extremely concerned about earnings per share dilution in equity related compensation we predict and find that firms experiencing significant employee stock option eso exercises shift resources away from real investments towards the repurchase of their own stocks we further find weak evidence of a decline in subsequent firm performance as measured by return on assets for several years following the cut in discretionary investments as a result of stock option exercises though this result is sensitive to the metric used to measure performance collectively our findings indicate that eso exercises potentially impose a real cost on the firm in terms of foregone investment opportunities

the effect of language on economic behavior evidence from savings rates health behaviors and retirement assets languages dier widely in the ways they encode time i test the hypothesis that languages that grammatically associate the future and the present foster future oriented behavior this prediction arises naturally when well documented eects of language structure are merged with models of intertemporal choice empirically i nd that speakers of such languages save more retire with more wealth smoke less practice safer sex and are less obese this holds both across countries and within countries when comparing demographically similar native households the evidence does not support the most obvious forms of common causation i discuss implications for theories of intertemporal choice

a test of competing explanations of compensation demanded the disparity between willingness to pay and willingness to accept also known as compensation demanded is a robust experimental finding two types of explanations been proposed the first invokes psychological effects broadly categorized as reference dependence and loss aversion the second explanation is that there are large substitution effects but that underlying behavior is neoclassically utility theoretic the key observation motivating the present study is that loss aversion implies concavity of willingness to accept whereas the utility theoretic explanation implies convexity we report experiments in which subjects were endowed with 3 items and asked the minimum payments they required to be willing to relinquish 1 2 or 3 of them we examine whether the compensation demanded is convex concave neither or both in the number of items being relinquished

four score and seven years from now the date delay effect in temporal discounting we describe a new anomaly in intertemporal choice the date delay effect discount rates that are imputed when time is described using calendar dates e g on october 17 are markedly lower than those revealed when future outcomes are described in terms of the corresponding delay e g in six months date descriptions not only reduce discount rates but also affect the implied shape of the discount function when inferred from intertemporal choices between options referenced by calendar dates the discount function appears markedly less hyperbolic we discuss potential psychological bases of the date delay effect its implications and other modes of temporal reference

performance thresholds in managerial incentive contracts performance thresholds are commonly used in executive compensation contracts we examine the contractual nonlinearity associated with performance thresholds and its incentive implications incorporating a performance threshold into a standard principal agent model of a linear contract we show that pay schemes using a performance threshold are optimal by truncating a linear scheme at poor performance the threshold mitigates agency costs associated with the downside risk of production examining ceo compensation data we find evidence of the role of performance thresholds as a consequence of under threshold performance the tobit estimator is shown to increase pay performance sensitivity notably improving upon the standard ols estimator

the tenuous trade off between risk and incentives empirical work testing for a negative trade off between risk and incentives has not had much success the data suggest a positive relationship between measures of uncertainty and incentives rather than the posited negative trade off i argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees when workers operate in certain settings firms are content to assign tasks to workers and monitor their inputs by contrast when the situation is more uncertain they delegate responsibility to workers but to constrain their discretion base compensation on observed output

are time preferences for risky outcomes riskless outcomes and commodities really different this paper suggests that part of the implied time subjective discount rate sdr collected by willingness to pay wtp is an immediate premium we offer a theoretical and experimental analysis of the gross sdr which consists of the immediate premium and the net sdr i e sdr less the immediate premium we find that the net sdr for an assured monetary payment is no different than the sdr for a lottery or usb stick however the gross sdr for the assured outcome is higher than the sdr for a lottery or the usb stick

the effect of fair value accounting on the performance evaluation role of earnings abstract we study the effect of fair value accounting on the association between net income and cash pay following the 2005 worldwide adoption of ifrs we find that while ifrs s non fair value provisions are associated with an increase in this association its fair value provisions are associated with a decrease in this association overall we contribute to the literature on the usefulness of fair value accounting by presenting evidence that fair value accounting is associated with a decrease in this association under assumptions that we detail and subject to caveats that we detail our evidence suggests that fair value accounting may reduce the usefulness of earnings in evaluating management performance

asymmetric treatment of reported pension expense and income amounts in ceo cash compensation calculations abstract we provide evidence that ceo cash compensation is relatively less sensitive to pension expense than pension income suggesting that compensation committees shield ceo cash compensation from pension expense amounts we also provide evidence that managers use relatively higher expected rate of return estimates when reporting pension income suggesting that managers select income increasing accounting estimates in response to compensation committees greater emphasis on pension income in ceo cash compensation determinations pension cost amounts represent a unique setting to examine such behavior as their effect on ceo cash compensation can be detrimental or beneficial but arise from the same underlying economic activity

self control for the righteous toward a theory of precommitment to indulgence prior research has examined consumers use of self control to avoid hedonic myopic temptations such as overspending and smoking in this research we investigate the opposite form of self control whereby consumers force themselves to indulge and avoid default forms of spending on utilitarian necessities and or savings in particular consumers who have difficulty choosing items that are perceived as indulgences or luxuries e g a cruise over necessities e g saving for college education and cash in everyday decisions may use precommitments to indulgence especially when the psychological cost of such commitments is less concrete these propositions were tested in a series of studies involving real and hypothetical choices as well as process measures the results indicate that a substantial segment of consumers choose hedonic luxury rewards over cash of equal or greater value consumers typically explain such choices based on the need to precommit to indulgence to make sure that the award does no

self command in practice in policy and in a theory of rational choice an increasingly familiar occurrence for obstetricians is being asked by patients to withhold anesthesia during delivery the physician often proposes that a facemask be put beside the patient who may inhale nitrous oxide as she needs it but some determined patients ask that no such opportunity be provided if gas is available they will use it and they want not to be able to the request is interesting for decision theory and raises questions of ethics policy and physician responsibility even if the woman is merely making a mistake if she simply does not know how painful labor will be and how glad she will be even in retrospect if the pain is relieved but some women who make this request have had earlier deliveries during which they demanded anesthesia and received it they are acquainted with the pain they anticipate asking for relief and they want it withheld when they do they expect to regret afterwards any recourse to anesthesia this particular instance of attempted selfdenial has features that are special but many that are common the woman is so far as we know in good health physically and mentally she anticipates a transient period when her usual values and preferences will be suspended or inaccessible she has reasons for wanting to frustrate her own wishes at the critical time she needs cooperation she may ratify her choice afterward by expressing herself grateful that no anesthesia was offered even when requested there are ethical dilemmas and legal issues and there is conflict if say the husband disagrees with the physician in the delivery room about what his wife really wants

exploring the trade off between immediate gratification and delayed network externalities in the consumption of information goods abstract our motivation for this paper originates from recent advances in consumption and payment technologies available for mobile commerce ubiquitous computing is enabling consumers worldwide to reach digital content and services whenever and wherever they request it this capability further fuels impatience in consumption of such information goods we model such consumer behavior using a hyperbolic discounting approach a subset of these products especially software also inherit delayed network externalities as part of their consumption characteristics this builds a tension between decision to consume now or to expedite consumption we build a stylized model to assess the impact of immediate gratification on the profit maximizing behavior of a monopolist firm which produces an information good with network externalities we find that serving impatient consumers is always profitable for a monopolist for lower levels of network externalities the monopolist can increase first period and decrease second period prices in equilibrium as network externalities effect increases prices converge to the traditional market with exponential discounters levels

adaptation and performance in foreign markets evidence of systematic under adaptation past empirical studies have yielded no consistent relationship between strategy adaptation and firm performance these inconclusive results may be partially due to a bias amongt managers to under adapt their host market strategies this paper presents the results of the second stage of a longitudinal study identifying a potential status quo bias among exporters leading to systematic under adaptation

strategic orientations incentive plan adoptions and firm performance evidence from electric utility firms this study examines the performance implications of the fit between strategic orientations and incentive plan characteristics research hypotheses are based on a framework that draws upon managerial discretion and agency theories to identify the links between firm strategy managerial motivation and control managerial risk bearing and incentive plan characteristics a pooled cross sectional time series research design is used to test hypotheses in a sample of 50 electric utility firms consistent with theory results indicate that annual bonus plans that use cash incentives and accounting measures of performance lead to better performance among firms with defender strategic orientations in contrast firms with prospector strategic orientations realize performance benefits when they adopt stock based incentive plans and use market measures to evaluate managerial performance 1997 john wiley sons ltd

managerial discretion in the choice among financial reporting alternatives abstract this paper considers the role of an agent choosing among reporting alternatives when that choice is unobserved by the principal and the agent s compensation contract is optimal the agent is allowed to take post outcome costly actions which lead to more precise reports of actual profits than would be yielded by less precise but costless conventional translations of outcomes e g gaap the extent to which the principal allows the agent this discretion depends upon the improvement in profits as an indicator of the agent s pre outcome effort when post outcome actions take place versus the attendant cost of these actions

habits and the anomalies in intertemporal choice this paper analyzes a model of discounted utility under habit formation habit formation means that utility in each period is determined by the difference between the received outcome and the customary outcome at that point in time preferences are rational in the sense that the decision maker correctly anticipates the habit formation process and behaves in a dynamically consistent manner i e plans are truly carried out the purpose is to demonstrate that this generalization of the discounted utility model accounts jointly and in a meaningful way for the most striking anomalies with respect to classical discounted utility theory the common difference effect is explained first this effect also called decreasing impatience effect has usually been viewed as evidence against exponential discounting then the frequently observed preference for increasing sequences of outcomes is examined such preference under the traditional discounted utility model would be regarded as a paradoxical case of negative discounting a discussion of the descriptive prescriptive and normative values of the model is included

biased valuations damage assessments and policy choices the choice of measure matters abstract damages from for example an oil spill can be measured by how much people are willing to pay to avoid them or by the minimum compensation they demand to accept them and decisions to clean up can be justified by the willingness to pay to do it or by the compensation necessary to forgo it contrary to the usual official and unofficial conventions that the choice of measure is of no matter the empirical evidence and intuitions of most people strongly suggest otherwise the appropriate choice of measure appears to turn not on legal entitlements but on the reference state people use to judge negative and positive changes a criteria that is likely to call into question most estimates of the damages of increased health risks and the value of environmental mitigation efforts

the today and tomorrow of kids time preferences and educational outcomes of children abstract we experimentally investigate the distribution of children s time preferences along gender and racial lines we find that boys are more impatient than girls and black children are more impatient than white children black boys have the highest discount rates of all groups most importantly we show that impatience has a direct correlation with behavior that is predictive of economic success an increase of one standard deviation in the discount rate is associated with an increase in the number of disciplinary referrals that a child has the following school year by 14 our results suggest that impatience might play an important role in determining the success of performance incentive programs for school children

inflation targeting in brazil chile and mexico performance credibility and the exchange rate inflation targeting it has been adopted by a growing number of countries and latin america has been part of this world trend this paper reviews the recent it experiences of brazil chile and mexico applying a common empirical framework to the three country cases inflation performance under it and its associated output costs are reported and compared favorably to a control group of other countries the paper analyzes ways by which it has contributed to strengthen credibility the effect of targets on inflation expectations and on actual inflation the low influence of inflation shocks on core inflation and the decline in inflation forecast errors do the three inflation targeters exhibit fear of floating no considering their relatively large exchange rate volatility and moderate international reserve holdings no considering strongly declining inflation to devaluation passthrough coefficients and little evidence for monetary policy reaction to exchange rate shocks yes considering the frequency and intensity of sterilized exchange interventions in comparison to other inflation targeters that float more cleanly

a contracting perspective on earnings quality abstract this paper analyzes the impact of signal to noise ratios and the autocorrelation of a performance measure on the principal s welfare in dynamic agencies with renegotiation we consider the impact of changes in the persistent transitory and reversible components of accounting earnings on its usefulness in valuation versus contracting increasing the persistent components and reducing the reversible components are generally desirable for valuation but not for contracting eliminating transitory components of earnings is generally desirable for valuation but not necessarily for contracting we discuss the contracting implications of differences in the autocorrelations of accounting earnings versus stock returns

ceo compensation after deregulation the case of electric utilities the 1992 national energy policy act nepa intensified competition in the electric utility industry by allowing nonutility generators to produce and sell power in wholesale energy markets congress expected nepa to lead to improved operating efficiencies by substituting market forces for regulation a data set that is unique to the utility industry allows us to test how and whether utility firms reallocated resources to improve efficiencies and more important for this study whether ceo compensation changed in accordance with agency theory predictions that ceo compensation would become more incentive based and more equity based in the competitive operating environment

intertemporal incentives under loss aversion this paper studies the intertemporal allocation of incentives in a repeated moral hazard model with reference dependent preferences as in k oszegi and rabin 2009 besides consumption utility the agent experiences utility from the change in his beliefs about present and future eort and income when eort plans are rational the prospect of being disappointed by the outcome realization equals that of being pleasantly surprised and hence the loss averse agent is on net hurt by news in contrast to the prediction with classical preferences but consistent with real world contracts if consumption utility is not too concave and news about present income carries suciently larger weight in utility than news about future income a contract setting a current

accounting earnings and top executive compensation abstract this paper investigates the role of accounting earnings in top executive compensation contracts it provides evidence in support of the hypothesis that earnings based incentives help shield executives from market wide factors in stock prices the paper demonstrates that earnings reflect firm specific changes in value but are less sensitive to market wide movements in equity values as a result the inclusion of earnings based performance measures in executive compensation contracts helps shield executives from fluctuations in firm value that are beyond their control the hypothesis is shown to explain cross sectional variation in the use of earnings based incentives

corporate performance and managerial remuneration an empirical analysis abstract economic theories of efficient compensation predict a positive relationship between executive pay and corporate performance and yet efforts to document this relationship have been largely unsuccessful in this paper we argue that previous cross sectional studies have omitted important variables which seriously bias their results using data that focus on individual executives over time we find that executive compensation is strongly positively related to corporate performance as measured by shareholder return and growth in firm sales the results are robust to the stock market performance measure utilized

golden parachutes executive decision making and shareholder wealth abstract this study examines changes in executive decision making and shareholder wealth which are associated with the adoption of special executive termination agreements typically referred to as golden parachutes two hypotheses associated with golden parachutes contracts which provide remuneration if there is a change in control of the corporation are developed for empirical analysis the results suggest that the adoption of golden parachutes is associated with a positive security market reaction moreover the cross sectional analysis of the security market reaction is consistent with the hypothesis that golden parachutes have a favorable effect on the reaction of executives to takeover bids

labor economics and the psychology of organizations this essay is a discussion of how economists are attempting to understand institutions within the organizations of the labor market the institutions and issues discussed include mandatory retirement discontinuous jumps in wages pay compression rights of tenure up or out hierarchies timing of raises promotions and evaluations the existence of partnerships the use of bonuses vs penalties and pay as a motivator

anticipation and the valuation of delayed consumption this paper presents a model of intertemporal choice that incorporates savoring and dread i e utility from anticipat ion of delayed consumption the model explains why an individual with positive time preference may delay desirable outcomes or get unpleas ant outcomes over with quickly contrary to the prediction of convent ional formulations of intertemporal choice implications of savoring and dread for savings behavior empirical estimation of discount rate s and public policy efforts to combat myopic behavior are explored the model provides an explanation for common violations of the indepe ndence axiom as applied to intertemporal choice copyright 1987 by royal economic society

the distribution of household income in brazil unequal and immutable summary after a period of rapid growth in the 1970s a macroeconomically turbulent decade of the 1980s the achievement of price stability during the 1990s and an impressive expansion of educational opportunities long term trends do not show an unambiguous increase or decline in brazilian household income inequality however behind the apparently invariable state of affairs one finds a marked decline in the proportion of households with incomes below 1 5 times the poverty line the use of a semi parametric procedure for constructing counterfactual income densities establishes that while advances in education were almost wholly associated with growth in absolute incomes they had little impact on their dispersion

toward an understanding of dynamic moral decision making model free and model based learning in business settings decision makers facing moral issues often experience the challenges of continuous changes this dynamic process has been less examined in previous literature on moral decision making we borrow theories on learning strategies and computational models from decision neuroscience to explain the updating and learning mechanisms underlying moral decision processes specifically we present two main learning strategies model free learning wherein the values of choices are updated in a trial and error fashion sustaining the formation of habits and model based learning wherein the brain updates more general cognitive maps and associations thus sustaining flexible and state dependent behaviors we then summarize studies explaining the neuro computational processes of both learning strategies the calculation of prediction errors and valuation we conclude by emphasizing how the incorporation of dynamic aspects in moral decision making could open new avenues for understanding moral behaviors in a changing world

on intertemporal selfishness how the perceived instability of identity underlies impatient consumption how does the anticipated connectedness between one s current and future identity help explain impatience in intertemporal preferences the less consumers are closely connected psychologically to their future selves the less willing they will be to forgo immediate benefits in order to ensure larger deferred benefits to be received by that future self when consumers measured or manipulated sense of continuity with their future selves is lower they accept smaller sooner rewards wait less in order to save money on a purchase require a larger premium to delay receiving a gift card and have lower long term discount rates

the dependence of pay performance sensitivity on the size of the firm i analyze the relationship between firm size and the extent to which executive compensation depends on the wealth of the firm s shareholders i use a simple agency model to motivate an econometric model of this relationship estimating this model on chief executive officer ceo compensation data using nonlinear least squares i determine that pay performance sensitivity as defined by jensen and murphy 1990b appears to be approximately inversely proportional to the square root of firm size however measured i also analyze the properties of pay performance sensitivity for teams of executives working for the same firm and show it to have similar properties as ceo pay performance sensitivity

willingness to pay and compensation demanded experimental evidence of an unexpected disparity in measures of value aside from possible income effects measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be equivalent unexpectedly wide variations between these sums however have been noted in survey responses to hypothetical options this paper reports the results of a series of experiments that confronted people with actual money payments and cash compensations the results indicate that the compensation measure of value seems to exceed significantly the willingness to pay measure which would appear to call into some question various rules of entitlement damage assessments and interpretations of indifference curves

the value of nothing asymmetric attention to opportunity costs drives intertemporal decision making this paper proposes a novel account of impatience people pay more attention to the opportunity costs of choosing larger later rewards than to the opportunity costs of choosing smaller sooner ones eight studies show that when the opportunity costs of choosing smaller sooner rewards are subtly highlighted people become more patient whereas when the opportunity costs of choosing larger later rewards are highlighted this has no effect this pattern is robust to variations in the choice task to the participant population and to whether the choices are incentivized or hypothetical we argue that people are naturally aware of the opportunity costs of delayed rewards but pay less attention to those associated with smaller sooner ones we conclude by discussing implications for theory and policy data as supplemental material are available at https doi org 10 1287 mnsc 2016 2547 this paper was accepted by yuval rottenstreich judgment and decision making

satiation and habit persistence or the dieter s dilemma abstract frequently individual consumption varies cyclically over time in order to model such behavior we have to generalize the intertemporal utility function so that it depends not only on current consumption but on total previous consumption and on the change in current consumption solving the resulting model requires a generalization of the euler lagrange equations

book rate of return and prediction of earnings changes an empirical investigation over the years there has developed a fairly substantial body of research on the time series of earnings as a whole this literature concludes that changes in annual accounting earnings are unpredictable that is earnings follow a random walk 1 based on this result some inferences of economic substance policy have been claimed 2 in this paper we reconsider empirical issues which at least to some extent have been obscured by this conclusion we argue that the above result is only true in a limited sense since a modest enlargement of the predictive information set should allow for a rejection of the hypothesis that earnings changes are

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

a new meta analysis on the wtp wta disparity abstract this study reports a new meta analysis of papers that elicit willingness to pay wtp and willingness to accept compensation wta measures of value for the same good we investigate the effects of type of good and several survey design features on the wtp wta disparity measured as the logarithm of the ratio of mean wta to mean wtp confirming horowitz and mcconnell s 2002 pioneering meta analysis we find the disparity is smaller for ordinary private goods than for public and non market goods that it is not solely an artifact of using hypothetical transactions or other weak experimental or survey methods and that it is smaller for studies using student subjects in addition we find that the disparity is smaller when subjects have experience valuing the good in real markets or through repeated experimental trials in contrast to horowitz and mcconnell we find the disparity is significantly smaller in studies using incentive compatible elicitation mechanisms the disparity is smaller in more recent studies an effect that is attributable only in part to changes in study characteristics

discount rates for time versus dates the sensitivity of discounting to time interval description abstract six experiments examine the impact of time interval descriptions on consumers discount rates consumers exhibit more discounting e g they demand more money to delay income when delay intervals are described by extents of time than when delay intervals are described by dates this pattern holds in various contexts including gains and losses and is robust to response mode changes findings further indicate that this effect may arise because compared with date descriptions extent descriptions enhance perceptions of interval length the author discusses other potential mechanisms and implications

canaries and vultures a quantitative history of monetary mismanagement in brazil during the last two decades of the twentieth century brazil went through a sequence of failed stabilization plans that tried to cope with an enduring hyperinflation this paper uses a money demand model to evaluate monetary policies during those episodes consistency between money supply and expected conditional money demand growth rates is considered for each plan it is shown that unsuccessful programs were marked by excessive liquidity the results not only suggest that monetary mismanagement led to the failure of the plans but also that the excessive liquidity could have been predicted