myopic investment decisions and competitive labor markets this paper analyzes an agency problem where managers are able to control an unobservable variable that affects the time distribution of returns on a firm s investments managers have an incentive to select myopic investments in order to convince the labor market that they have relatively high ability the authors demonstrate that if employment terms are determined in competitive labor markets and there are lower bounds on compensations then at the principal s second best contract managers make a myopic investment choice they also characterize the structure of the principal s second best contract and conduct comparative statics at this solution copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the inexorable and mysterious tradeoff between inflation and unemployment this paper discusses the short run tradeoff between inflation and unemployment although this tradeoff remains a necessary building block of business cycle theory economists have yet to provide a completely satisfactory explanation for it according to the consensus view among central bankers and monetary economists a contractionary monetary shock raises unemployment at least temporarily and leads to a delayed and gradual fall in inflation standard dynamic models of price adjustment however cannot explain this pattern of responses reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists several years ago i gave myself a peculiar assignment i decided to try to summarise all of economics in ten simply stated principles the purpose of this task was to introduce students to the economic way of thinking in the first chapter of my textbook principles of economics i figured if god could boil all of moral philosophy down to ten commandments i should be able to do much the same with economic science most of the ten principles i chose were microeconomic and hard to argue with they involved the importance of tradeoffs marginal analysis the benefits of trade market efficiency market failure and so on i allocated the last three principles to macroeconomics the first of these was a country s standard of living depends on its ability to produce goods and services which i viewed as the foundation of all growth theory the second was prices rise when the government prints too much money which i took to be the essence of classical monetary theory the last of my ten principles is the subject of today s lecture society faces a short run tradeoff between inflation and unemployment perhaps not surprisingly this statement turned out to be controversial when my publisher sent out the manuscript for review a few readers objected

managerial bargaining power in the determination of compensation contracts and corporate investment this paper considers the design of managerial compensation contracts and their impact on corporate investment decisions and the managerial effort decision the model relates the compensation scheme to outside share ownership and managerial bargaining position using the methods of mechanism design under asymmetric information a shift in favor of effort is documented in the case where managerial bargaining strength is weak while a shift toward more use of capital investment results from strong managerial bargaining power the model distinguishes managerial equity holdings from contingent compensation contracts our results are related to the empirical literature on pay performance sensitivities

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

tricks with hicks the easi demand system we invent implicit marshallian demands which combine desirable features of hicksian and marshallian demands we propose and estimate the exact affine stone index easi implicit marshallian demand system like the almost ideal demand aid system easi budget shares are linear in parameters given real expenditures however unlike the aid easi demands can have any rank and its engel curves can have any shape over real expenditures easi error terms equal random utility parameters to account for unobserved preference heterogeneity easi demand functions can be estimated using gmm or three stage least squares and like aid an approximate easi model can be estimated by linear regression

sticky information phillips curves european evidence we estimate the sticky information phillips curve model of mankiw and reis 2002 using survey expectations of professional forecasters from four major european economies our estimates imply that in ation expectations in france germany and the united kingdom are updated about once a year in italy about once each six months

prices and quality effects in cross sectional demand analysis a conceptual clarification of the sources and meaning of cross sectional price variability is used to motivate a theoretical and econometric framework for the estimation of cross sectional demand functions quality effects are distinguished from supply related price variability to identify cross sectional demand for disaggregated food commodities an empirical application using data from the 1977 78 nationwide food consumption survey indicates that parameter differences resulting from a failure to adjust cross sectional prices for quality effects are likely to be small for relatively homogenous disaggregated food commodities in demand analysis with cross sectional household budget data it is usually assumed that prices are constant allen and bowley prais and houthakker george and king given this assumption engel functions are estimated where expenditure or quantity is regressed on income or total expenditures family size and other demographic characteristics the assumption that cross sectional price effects are absent or are captured adequately by spatial and temporal dummy variables has not been evaluated empirically whether cross sectional price effects can be treated in this manner has implications for the specification of cross sectional demand functions as well as the estimation of engel functions there is a considerable literature on estimating price elasticities with cross sectional data most of the applications utilize timeseries cross sectional data annual or quarterly household consumption surveys and

accounting for persistence and volatility of good level real exchange rates the role of sticky information abstract volatile and persistent real exchange rates are observed not only in aggregate series but also in micro price data at the retail level kehoe and midrigan 2007 recently showed that under a standard assumption on nominal price stickiness empirical frequencies of micro price adjustment cannot replicate the time series properties of the law of one price lop deviations we extend their sticky price model by combining good specific price adjustment with information stickiness in the sense of mankiw and reis 2002 our framework allows for multiple cities within a country using a panel of u s canadian city pairs we estimate a dynamic price adjustment process for 165 individual goods under a reasonable assumption on the money growth process we show that the model matches the persistence of the lop deviation for the median good and accounts for the majority of its volatility when information updates occur every 12 months

when ownership structure matters a review of the effects of investor horizon on corporate policies this paper surveys the literature on the impact of investor horizon on corporate policies while the desire to encourage long term investor ownership is shared among managers boards and policy makers how greater long term investor ownership benefits corporate decisions and ultimately firm performance is still under academic investigation the contribution of this paper is twofold the paper s first contribution is providing an up to date review of theoretical and empirical findings this paper introduces the groups of long term and short term investors and the related classification methodologies and investor horizon proxies used to form them it further reviews the determinants of an investor s horizon then this paper organizes the literature on the impact of investor horizon on corporate policies around three main channels the short term pressure hypothesis the monitoring hypothesis and the catering hypothesis the paper s second contribution is identifying six major challenges ahead that need to be addressed to improve the understanding of the impact of long term short term investor ownership on corporates policies these challenges represent opportunities for further research

quality quantity and spatial variation of price this paper develops and implements a method for estimating price elasticities of demand using cross sectional household survey data geographically clustered households report unit values which when corrected for quality effects and for measurement error indicate the underlying spatial variation in prices and can be matched to variation in demand patterns a simple model of quality choice is proposed while the correction for measurement error exploits the clustered design of such surveys data from a 1979 household survey from the ivory coast are used to estimate price elasticities for beef meat fish cereals and starches copyright 1988 by american economic association

estimates of the sticky information phillips curve for the united states mankiw and reis 2002 have proposed a sticky information based phillips curve sipc to address some of the concerns with the sticky price based new keynesian phillips curve in this paper we present a methodology to empirically implement the sipc and estimate its key structural parameter the degree of information stickiness for the united states using this methodology we estimate average durations of information stickiness that range from three quarters on the low side to over seven quarters on the high side

predetermined prices and the persistent effects of money on output this note illustrates a model of predetermined pricing where firms set a fixed schedule of nominal prices at the time of price readjustment based on the work of fischer 1977 this contrasts with the model of fixed pricing the specification underlying most recent dynamic sticky price models it is well known that predetermined pricing cannot generate substantial persistence in the real effects of monetary shocks when prices are set via fixed duration contracts unless the contracts are of long duration however we show that with a probabilistic model of price adjustment a predetermined pricing specification can produce almost as much persistence as the more conventional model of fixed prices without the assumption of long average contract duration

information rigidity and the expectations formation process a simple framework and new facts we propose a new approach to test the full information rational expectations hypothesis which can identify whether rejections of the null arise from irrationality or limited information this approach quantifies the economic significance of departures from the null by quantifying the underlying degree of information rigidity applying this approach to u s and international data of professional forecasters and other agents yields pervasive evidence consistent with models of imperfect information furthermore the proposed approach sheds new light on policies such as inflation targeting and those leading to the great moderation affecting expectations finally we document evidence of state dependence in the expectations formation process

model selection and forecasting ability of theory constrained food demand systems out of sample forecasting of annual u s per capita food consumption applying data from 1923 to 1992 is used as a basis for model selection among the absolute price rotterdam model a first differenced linear approximate almost ideal demand system fdla alids model and a first differenced double log demand system conditional on price consumption forecasts derived from elasticities are determined to be superior to direct statistical model forecasts models with consumer theory imposed through parametric restrictions provide better forecasts than models with little theory imposition for these data a double log demand system is a superior forecaster to the rotterdam model which is superior to the fdla alids model

a quantitative comparison of sticky price and sticky information models of price setting i estimate sticky price and sticky information models of price setting for the united states via maximum likelihood techniques reaching several conclusions first the sticky price model fits best and captures inflation dynamics as well as reduced form equations once hybrid behavior is allowed second the importance of hybrid behavior in sticky price models is potentially consistent with a role for some information imperfections such as sticky information as a complement to nominal price rigidities finally the favorable results herein for the hybrid sticky price model when evaluated by statistics that summarize the relative fit of different models is consistent with the existing literature that is both supportive and dismissive of such models as this literature has largely ignored fit in evaluating such models many previous studies have focused on ancillary issues such as the standard errors associated with certain parameters or granger causality tests that may not provide much information about sticky price models

exclusive dealing investment promotion may facilitate inefficient foreclosure this paper studies a model whereby exclusive dealing ed can both promote investment and foreclose a more efficient supplier since ed promotes the incumbent seller s investment the seller and the buyer realize a greater surplus from bilateral trade under exclusivity hence the parties involved may sign an ed contract that excludes a more efficient entrant in circumstances where ed would not arise absent investment the paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ed

gasoline prices fuel economy and the energy paradox abstract policymakers often assert that consumers undervalue future gasoline costs when they buy automobiles we test this by measuring whether relative prices of vehicles with different fuel economy ratings fully adjust to variation in gasoline prices vehicle prices move as if consumers are indifferent between 1 00 in discounted future gas cost and 0 76 in vehicle purchase price we show how corrections for endogenous market shares and utilization measurement error and different gasoline price forecasts affect the results we also provide unique evidence of sticky information vehicle markets respond to changes in gasoline prices with up to a six month delay

prices and demand new evidence from micro data abstract micro level demand studies typically do not have price information as an approximation it is frequently assumed that households face the same set of prices at a given point in time and these prices are taken to be national indexes such as implicit price deflators in the national accounts i find that this source of measurement error leads to severely distorted estimates of demand parameters

international evidence on the efficacy of new keynesian models of inflation persistence in this paper we take an agnostic view of the phillips curve debate and carry out an empirical investigation of the relative and absolute efficacy of calvo sticky price sp sticky information si and sticky price with indexation models spi with emphasis on their ability to mimic inflationary dynamics in particular we look at evidence for a group of 13 oecd countries and we consider three alternative measures of inflationary pressure including the output gap labor share and unemployment we find that the calvo sp and the si models essentially perform no better than a strawman constant inflation model when used to explain inflation persistence indeed virtually all inflationary dynamics end up being captured by the residuals of the estimated versions of these models we find that spi model is preferable because it captures the type of strong inflationary persistence that has in the past characterized the economies of the countries in our sample however two caveats to this conclusion are that improvement in performance is driven mostly by the time series part of the model i e lagged inflation and that the spi model overemphasizes inflationary persistence thus there appears to be room for improvement via either modified versions of the above models or via development of new models that better track inflation persistence

modelling the general public s inflation expectations using the michigan survey data in this article we discuss a few models developed to explain the general public s inflation expectations formation and provide some relevant estimation results furthermore we suggest a simple bayesian learning model which could explain the expectations formation process on the individual level when the model is aggregated to the population level it could explain not only the mean values but also the variance of the public s inflation expectations the estimation results of the mean and variance equations seem to be consistent with the results of the questionnaire studies in which the respondents were asked to report their thoughts and opinions about inflation

a naive sticky information model of households inflation expectations this paper provides a simple epidemiology model where households when forming their inflation expectations rationally adopt the past release of inflation with certain probability rather than the forward looking newspaper forecast as suggested in carroll 2003 macroeconomic expectations of households and professional forecasters quarterly journal of economics 118 269 298 the posterior model probabilities based on the michigan survey data strongly support the proposed model we also extend the agent based epidemiology model by deriving for it a simple adaptation which is suitable for estimation our results show that this model is able to capture the heterogeneity in households expectations very well

monetary neutrality under evolutionary dominance of bounded rationality i introduction a key property of the dynamic relationship between money and output is that due to price stickiness monetary shocks have persistent although not permanent impacts on the real output see e g christiano eichenbaum and evans 1999 the nominal adjustment of the aggregate price level in response to a monetary shock is therefore temporarily incomplete and considerable supporting empirical evidence for price rigidity has been found in several microprice studies see e g nakamura and steinsson 2013 and klenow and malin 2011 for comprehensive discussions of these studies mankiw and reis 2002 develop a novel model of temporarily incomplete nominal adjustment based on the assumption that costly information disseminates slowly in each period a random fraction of the price setters updates itself on the state of the economy so as to compute and set the optimal price while the remaining fraction keeps setting prices based on outdated information they admit that micro foundations for price stickiness may require a better understanding of bounded rationality and that information processing is more complex than the time contingent adjustment assumed in their paper in fact as added in mankiw and reis 2011 while the cost of acquiring information may be small and may even have fallen in this information age the costs of absorbing and processing information may be rather large and actually higher today than those in the past this paper contributes to the intuition on price setting under bounded rationality by developing a model in which the share of firms that have up to date information on relative prices to establish the optimal price follows evolutionary dynamics with and without mutation and not a random dynamics a la calvo 1983 as in mankiw and reis 2002 and the related literature our aim is to devise evolutionary game theoretic dynamics to provide alternative microfoundations for a temporarily incomplete nominal adjustment following a monetary shock we investigate the behavior of the general price level in an economy in which an individual firm can either pay a cost featuring a random component to update its information set and establish the optimal price nash strategy or freely use full information from the previous period and set a one period lagged optimal price bounded rationality strategy indeed detailed empirical studies such as the investigation for the euro zone by alvarez et al 2006 have found persistent coexistence of forward looking and backward looking price setting behavior and there is also robust empirical evidence showing persistent and time varying heterogeneity both in the frequency and in the extent of information updating see e g branch 2007 coibion and gorodnichenko 2012 we then devise evolutionary game theoretic microdynamics in discrete time that by interacting with the dynamics of the macroeconomic variables affects the coevolution of the frequency distribution of information updating strategies across firms and the completeness of the nominal adjustment of the general price level to a monetary shock our model economy is composed of monopolistically competitive firms whose individual optimal price depends positively upon the prices set by others implying the existence of strategic complementarity in a given period there is a fraction of firms that set prices without perfect knowledge of the structure of relative prices and hence of the prices that other firms will be setting as they decide not to pay the information cost involved in knowing it we refer to these firms as boundedly rational firms the remaining fraction is composed of firms that decide to incur the information updating cost to obtain that perfect knowledge and we follow droste hommes and tuinstra 2002 in referring to them as nash firms as they become perfect foresight firms meanwhile the optimal price is assumed to be given as in ball and romer 1991 varying positively with the actual general price level and nominal stock of money which is publicly known

demand system estimation in the absence of price data an application of stone lewbel price indices this article evaluates the feasibility of estimating a system of demand equations in the absence of price information using the approach developed by lewbel 1989 stone lewbel sl price indices for commodity groups are constructed using information on the budget shares and the consumer price indices cpis of the goods comprising the commodity groups which allows for household level prices to be recovered this study evaluates how susceptible are elasticities and marginal effects estimates from traditional parametric demand systems to the cpi used in the construction of the sl prices to do this three alternative regional cpis are considered for the construction of the sl prices monthly quarterly and a constant unity price index elasticities and marginal effect estimates are computed for eight food commodity groups using the exact affine stone index easi model as the parametric demand system and data from the united states consumer expenditure survey the estimates proved to be robust to the a

household demand for fats and oils two step estimation of a censored demand system a censored system of household fat and oil demand equations is estimated with a two step procedure using cross sectional data from the 1987 1988 us nationwide food consumption survey own price and total expenditure elasticities are close to unity and there is no evidence of gross substitutability compensated elasticities suggest net substitution among the products considered

how well does sticky information explain the dynamics of inflation output and real wages abstract this paper finds that a model with sticky information is less successful than a standard model featuring nominal rigidities inflation indexation and habits in generating the dynamics triggered by technology shocks as estimated by a vector autoregression using u s macroeconomic data the real wage responses after a permanent increase in productivity clearly favor the standard model the sticky information model fails to replicate the observed inertial response in the real wage whereas the standard model relies on inflation indexation in wage setting to achieve a better fit the two models are however statistically equivalent after a shock in monetary policy

do foreign owners favour short term profit evidence from germany comparing domestic and foreign owned firms in germany this paper finds that foreign owned firms are more likely to focus on short term profit this influence is particularly strong if the local managers of the german subsidiary are not sent from the foreign parent company moreover the physical distance between the foreign parent company and its german subsidiary increases the probability of focusing on short term profit these findings conform to the hypothesis that foreign owners facing an information disadvantage concerning the local conditions of their subsidiaries are more likely to favor short term profit however we do not identify differences in short termism between investors from anglo saxon and other foreign countries rather results point in the direction of more general features of international business investment

investment policy in family controlled firms abstract we explore the relation between family ownership and corporate investment policy our analysis centers on two incentives risk aversion and extended investment horizons which potentially influence the level and type of investments that family firms undertake we find that family firms devote less capital to long term investments than firms with diffuse ownership structures when dividing long term investment into its two components of r d and capital expenditures we note that family firms relative to nonfamily firms prefer investing in physical assets relative to riskier r d projects additional tests indicate that family firms receive fewer patent citations per dollar of r d investment relative to nonfamily firms overall all empirical results indicate that family preferences for lower firm risk across all family sub types affects corporate r d spending and capital expenditures

managerial reputation and divisional sell offs a model and empirical test abstract this paper presents a reputation model of divestiture activity that yields a sharp cross sectional implication for event studies of sell off announcements a decision to divest a division that is known to be successful conveys good news about the division in contrast a decision to divest a division that is known for underperformance conveys no news about the division we test these hypotheses on a sample of sell off announcements for which we find stories in the wall street journal unambiguously characterizing the division being sold as either a winner or a loser the stock price reaction to the sell off of losers is indistinguishable from zero while the stock price reaction to the sell off of winners is a statistically significant 2 5 these results are strengthened when we expand the sample to include divisions whose profitability was announced in the company s annual report for this expanded sample the average stock price reaction to the announcements of sell offs of losers remains indistinguishable from zero while returns from the sell offs of winners average a highly significant 3 4

what can survey forecasts tell us about information rigidities a lot we derive common and conflicting predictions from models in which agents face information constraints and then assess their validity using surveys of consumers firms central bankers and professional forecasters we document that mean forecasts fail to completely adjust on impact to shocks leading to statistically and economically significant deviations from the null of full information the dynamics of forecast errors after shocks are consistent with the predictions of models with information rigidities the conditional responses of forecast errors and disagreement among agents can also be used to differentiate between some of the most prominent models of information rigidities

testing the sticky information phillips curve abstract i consider the empirical evidence for the sticky information model relative to the basic sticky price model conditional on historical measures of inflation forecasts the estimated structural parameters are inconsistent with an underlying sticky information model and the sticky information phillips curve is statistically dominated by the new keynesian phillips curve i find that the poor performance of the sticky information approach is driven by two key elements first the sticky information model underestimates inflation in the 1970s and overestimates inflation since the 1980s second predicted inflation from the sticky information model is excessively smooth

limited liability contracts between principal and agent abstract the optimal strategy of the principal is examined in an environment where there are ex post limitations on the maximum penalty that can be imposed on a riskneutral agent contrary to the case in which such limitations are not imposed it is in the principal s interest to deliberately forego the opportunity to induce socially efficient behavior and to instead design a contract that induces the agent to realize an efficient outcome only in the most productive state of nature and perhaps in certain very unproductive states the properties of the contract are examined in detail

a tale of two rigidities sticky prices in a sticky information environment macroeconomic models with microeconomic foundations allow for comparisons with macro and micro empirical evidence this paper proposes a model wherein firms i acquire information infrequently generating sticky information mankiw and reis 2002 and ii face menu costs producing state dependent sticky prices i estimate parameters via indirect inference and show that under considerable real rigidity sticky prices in a sticky information environment are consistent with micro and macro evidence sticky prices not only help match micro data on price changes size and durations between adjustments they also improve the model s fit with the macro data as embodied in an empirical phillips curve

bootstrap inference in econometrics the astonishing increase in computer performance over the past two decades has made it possible for economists to base many statistical inferences on simulated or bootstrap distributions rather than on distributions obtained from asymptotic theory in this paper i review some of the basic ideas of bootstrap inference the paper discusses monte carlo tests several types of bootstrap test and bootstrap confidence intervals although bootstrapping often works well it does not do so in every case

owner managers and firm performance during the asian and global financial crises evidence from korea abstractwe examine the performance of the korean owner managers during the 1997 1998 asian financial crisis and the 2008 2009 global financial crisis to establish whether they overcome the unexpected exterior shocks better than employed managers we find that the owner managers record a significantly greater performance during the crises and especially during the latter period moreover our results suggest that such a tendency comes from the owner managers superior investment decisions our paper thus highlights the role of owner managers by studying their performance during the korean economic crisis periods jel g01 g32 g34

real economy effects of short term equity ownership investor time horizon varies by company industry and economic system in this article we explore the importance of this variation by studying the impact of shareholder time horizon on the investment decisions of the firms they own and externalities on the wider market we demonstrate theoretically that short term shareholders cause boards to care about the path of the stock price rationalising firms pursuit of investments for signalling reasons at the expense of long term value we demonstrate that short termism has spillover effects leading to higher costs of equity capital bubbles in the price of input assets and predictable excess returns we build testable cross country hypotheses and evaluate these using existing evidence coupled with a new dataset on owner duration of us and germanic firms

savings investment and the corporation in the east asian miracle abstract the east asian countries have achieved a spectacular average rate of economic growth over the last 30 to 40 years with very substantial diversification and economic development korea for example managed to transform itself from being a largely agricultural society in 1960 to the point where it became the third country after the us and japan to export 256 k memory chips developed by its own firms it is no exaggeration to say that the post wwii development of east asia including japan is the most successful story of sustained economic growth in the history of mankind how does one account for this extraordinary economic success

macroeconomic expectations of households and professional forecasters economists have long emphasized the importance of expectations in determining macroeconomic outcomes yet there has been almost no recent effort to model actual empirical expectations data instead m acroeconomists usually simply assume that expectations are rational this paper shows that while empirical household expectations are not rational in the usual sense expectational dynamics are well captured by a model in which households views derive from news reports of the views of professional forecasters which in turn may be rational the model s estimates imply that people only occasionally pay attention to news reports this inattention generates stickyness in aggregate expectations with important macroeconomic consequences

estimating food demand in paraguay from household survey data we estimate a food demand system in paraguay based on the 1997 national household survey considering 12 food categories to obtain demand elasticity estimates from household survey data accounting for quality effects measurement errors and censored observations price indexes are obtained from ordinary least squares predictions of changes in unitary values caused by spatial and temporal variations and the two step estimation procedure shonkwiler and yen 1999 is applied our approach yields reasonable estimates of combined quantity and quality responses with respect to price results suggest distinct consumption behavior in urban and rural areas particularly for chicken eggs dairy and fats and oils which are likely because of differences in the food distribution system and availability of nonmarket food sources

takeover threats and managerial myopia this paper examines the familiar argument that takeover pressure can be damaging because it leads managers to sacrifice long term interests in order to boost current profits if stockholders are imperfectly informed temporarily low earnings may cause the stock to become undervalued increasing the likelihood of a takeover at an unfavorable price hence the managerial concern with current bottom line the magnitude of the problem depends on a variety of factors including the attitudes and beliefs of shareholders the extent to which corporate raiders have inside information and the degree to which managers are concerned with retaining control of their firms

managerial legacies entrenchment and strategic inertia this paper argues that the legacy potential of a firm s strategy is an important deter minant of ceo compensation turnover and strategy change a legacy makes ceo replacement expensive because firm performance can only partially be attributed to a newly employed manager boards may therefore optimally allow an incumbent to be entrenched moreover when a firm changes strategy it is optimal to change the ceo because the incumbent has a vested interest in seeing the new strategy fail even though ceos have no specific skills in our model legacy issues can explain the empirical association between ceo and strategy change this paper proposes a model of ceo replacement and puts forward a novel determinant for turnover decisions the legacy potential of a firm s strategy we mean by this the extent to which a manager s decisions affect future firm cash flows potentially beyond the manager s own tenure the replacement of a ceo is arguably one of the most important decisions a firm takes yet the theoretical and empirical finance literature has relatively little to say about the firm and manager specific characteristics that lead to one manager being fired and replaced by another as brickley 2003 points out the only variable that predicts turnover empirically is poor firm performance but it has little pre dictive power theoretical papers on managerial turnover tend to reduce ceo successions to a sequence of static interactions see below for more details as such they do not distinguish between a ceo who is hired and can start a fresh project or one who is constrained in this choice because he inherits a prede cessor s long term strategy our paper focuses on this latter phenomenon and investigates turnover decisions when strategy choices have a legacy potential the fact that a dynamic link exists between a ceo and his predecessor is probably more recognized in the accounting literature than in finance pourciau both authors are from the toulouse school of economics and the institut d administration des

does self fulfilment of the inflation expectation exist abstractthis study examines the causal relationship between the actual and expected inflation in the u s using the bootstrap granger full sample causality test and sub sample rolling window estimation test to illustrate the self fulfilment of inflation expectations the full sample result indicates that there is a bidirectional causality between the actual and expected inflation showing the possibility of self fulfilment of inflation expectations which illustrates that inflation is driven by inflation expectation however considering structural changes in two series we find that the short run causal nexus between the actual and expected inflation using full sample data are fraudulent by adopting a time varying rolling window approach to revisiting the dynamic causal relationships this article identifies that the actual inflation has both positive and negative impacts on the expected inflation in distinct sub periods nevertheless inflation expectation exerts only negative effects on the actual inf

managerial incentives for short term results a comment in managerial incentives for short term results narayanan 4 examines the manager s incentive to make a suboptimal decision in particular an incentive to choose projects that yield short term profits even when the manager is compensated with a long term contract this incentive to act myopically at the expense of shareholders welfare is attributed to the manager s very concern for the long term impact of current actions that is the desire to enhance reputation earlier to boost wages although this type of myopic behavior is a cause for great concern and narayanan s approach is interesting the particular model he develops has a serious drawback we discuss briefly in this note how the shareholders can easily anticipate and prevent the manager from making a suboptimal decision by providing proper incentive contracts using the model by harris and holmstrom 1 as a benchmark narayanan sets up a multiperiod principal agent relationship in which the manager s ability is unknown and project choice is unobservable by the shareholders since the manager s ability is unknown compensation depends upon the observable output not being able to observe the project choice the shareholders update their prior on the manager s ability according to their conjecture of the manager s project choice the manager in turn chooses a project so as to maximize expected future wage which depends upon the shareholders perception of the manager s ability by choosing a quicker return project the manager may induce the shareholders to attribute the extra dollars to higher ability resulting in greater wages in the future thus we have a game theoretic situation the illustrated game in the paper deals with two alternative projects yielding a 2 x 2 bimatrix nonconstant sum game with payoffs determined by the strategies and cash flows from the project given this game structure narayanan is able to obtain a unique nash equilibrium where both players use dominant strategies the choices of strategies for both players depend upon the value of 5k the difference between the manager s expected total wage from projects a and b regardless of the shareholders strategy conjecture on the project choice if 4k is positive negative both players choose a b as their dominant strategy this equilibrium can be summarized by a usual 2 x 2 matrix as follows

food expenditures and household demographic composition in the us a demand systems approach food expenditures and subsistence quantities of poverty status and non poverty status us households are analysed within a linear expenditure system that postulates subsistence quantities to be linear combinations of demographic variables using the us bureau of labor statistics 1992 consumer expenditure survey and detailed monthly consumer price indices this article obtains expenditure elasticities own price elasticities and subsistence quantities for each income group across nine broadly aggregated food commodity groups elasticity estimates and subsistence quantity estimates differ across income groups supporting the premise that policies targeted at specific income groups should be based on the target group s elasticity estimates rather than average population elasticities parameter estimates are then used to simulate how subsistence quantities and own price elasticities can be expected to vary according to the demographic composition of the household within a specific income group

a sample selection approach to censored demand systems the multivariate sample selection model is extended to a nonlinear equation system with partial selection and applied to household meat consumption in china elasticity estimates differ from those obtained from conventional maximum likelihood and tobit estimates chinese meat products are gross complements while net substitution also exists in some cases the use of micro survey data has been popular in estimating consumer demand equations important features of microdata include censored dependent variables estimation procedures for censored consumer demand systems include the primal kuhn tucker approach of wales and woodland 1983 dual virtualprice approach of lee and pitt 1986 and the tobit system amemiya 1974 estimated by generalized maximum entropy golan perloff and shen 2001 and maximum simulated likelihood dong gould and kaiser 2004 yen lin and smallwood 2003 procedures less efficient alternatives include the quasi maximum likelihood estimator yen lin and smallwood 2003 the generalized method of moments estimator meyerhoefer ranney and sahn 2005 and a number of two step estimators heien and wessells 1990 perali and chavas 2000 shonkwiler and yen 1999 yen 2005 recently proposed a maximum likelihood ml procedure for the multivariate sample selection model mssm an extension of the bivariate sample selection model heckman 1979 which had motivated the procedures of heien and wessells 1990 and shonkwiler and yen 1999 the mssm was developed in the context of linear equations and in addition is not strictly applicable for a partially selective equation system viz

an empirical analysis of the reincorporation decision the literature suggests two competing explanations for reincorporations efforts at managerial entrenchment and attempts to improve contractual efficiency the empirical evidence to date is inconclusive to seek further evidence we examine a large sample of firms that changed their state of incorporation over the period 1980 1992 we find that shareholder wealth is decreased by reincorporations that erect takeover defenses but is increased by reincorporations that establish limits on director liability firms that claim they reincorporate to limit the personal liability of their board members and thereby attract better qualified outside directors do in fact expand the outside representation on their boards whereas firms citing other motives do not

integrating sticky prices and sticky information abstract understanding the relationship between nominal and real variables most notably inflation and cyclical output is one of the fundamental questions of economics toward this understanding we develop a model that integrates sticky prices and sticky information a dual stickiness model we find that both rigidities are present in u s data we also show that the dual stickiness model s closest competitor is the hybrid new keynesian model for both models current inflation depends in part on last period s inflation the former model achieves this dependence endogenously through the interaction of the two rigidities rather than through backward looking behavior u s data support the dual stickiness model over the hybrid model because lagged expectations terms appear in the former s inflation euler equation finally we show that it is quantitatively important to distinguish between the two by simulating a dynamic equilibrium model under each of the two inflation equations

on inflation and output with costly price changes a simple unifying result this paper determines the real effects of credible disinflation when price setting is staggered the results are surprising a fairly quick disinflation causes a boom this finding suggests that nominal price rigidity alone does not explain why disinflation is costly in actual economies this abstract was borrowed from another version of this item

staggered boards corporate opacity and firm value abstract we explore the effect of corporate opacity on the relation between staggered boards and firm value we find that through mitigating takeover pressure staggered boards become increasingly beneficial to firm value as opacity increases in addition we document that staggered boards reduce value only in transparent firms additional tests indicate that as opacity increases staggered boards bear an increasingly positive relation to research and development and ceo pay performance sensitivity taken together these results suggest that corporate opacity affects the value impact of takeover protection

strategic interaction among heterogeneous price setters in an estimated dsge model abstract we consider a dynamic stochastic general equilibrium model dsge in which firms follow one of four price setting regimes sticky prices sticky information rule of thumb or full information flexible prices the parameters of the model including the fraction of each type of firm are estimated by matching the moments of the observed variables of the model to those found in the data we find that sticky price firms and sticky information firms jointly account for over 80 of firms in the model we compare the performance of our hybrid model to pure sticky price and sticky information models along various dimensions including monetary policy implications

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting