an equilibrium model of asset trading with sequential information arrival in an effort to better understand the dynamic market price adjustment process this paper develops a model which describes the impact of new information on a financial market the primary emphasis is on the price change volume relationship in the presence of a margin requirement we find that the margin requirement significantly affects the relation of price change to volume furthermore this relationship is shown to be affected by the number of investors in the market the degree of information dissemination differences in interpretation of information and the implicit cost of the margin requirement

a theory of trading volume a theory of trading volume is developed based on assumptions that market agents frequently revise their demand prices and randomly encounter potential trading partners the model describes two distinct ways informational events affect trading volume one is consistent with conjectures made by empirical researchers that investor disagreement leads to increased trading but the observation of abnormal trading volume does not necessarily imply disagreement and volume can increase even if investors interpret the information identically if they also have had divergent prior expectations simulation tests support the model and are used to contrast the random pairing environment with costless market clearing volume is lower in the costly market and volume increases caused by an informational event persist after the event period this is consistent with existing empirical evidence and suggests that markets do not immediately clear all orders or that investors have demands to recontract

market expectations of the effects of the tax reform act of 1986 on banking organizations abstract this study investigates market expectations regarding the effect of the tax reform act of 1986 on the banking industry the evidence shows that overall the tax reform did not adversely affect the stocks of banking institutions the findings suggest that overall banking organizations were expected to largely mitigate any negative effects of the tax reform on their cash flow by rebalancing and or repricing their portfolios of assets and liabilities the most significant provision of the new act was the limitation on foreign tax credits interestingly the markets did not expect any adverse valuation effects from the recapture of loan loss reserves or the elimination of the interest deductibility for carrying tax exempt securities

distribution of ability and earnings in a hierarchical job assignment model we examine the mapping of the distribution of ability onto earnings in a hierarchical job assignment model workers are assigned to a continuum of jobs in fixed proportions ordered by sensitivity to ability the model implies a novel marginal productivity interpretation of wages we derive comparative statics for changes in technology and in the distribution of ability we find conditions under which a more unequal distribution of ability maps onto a more less unequal distribution of earnings we also analyze an assignment model with variable proportions and find that in the cobb douglas case a rise in the inequality of ability always narrows the range of earnings

glass ceilings or sticky floors statistical discrimination in a dynamic model of hiring and promotion i show that when two groups differ in i their average skill level ii the precision with which they can signal their skill prior to entering the labour market and or hi the frequency with which they have the opportunity to signal their skill prior to entering the labour market then even if firms become increasingly informed regarding each worker s skill over time equally skilled workers from different groups will have different likelihoods of making it to top jobs in the economy even though there is no discrimination when it comes to promotion to these top jobs in 1995 95 of senior level managers in the top fortune 1000 industrial and 500 service companies in the us were male 97 of whom were also white federal glass ceiling commission 1995 in the uk females make up just 8 3 of the senior judi ciary 9 7 of top business leaders and 9 1 of newspaper editors eoc 2005 at the end of the 2004 american football season only 5 of the 32 nfl head coaches were black and only 2 of the 117 division i college football teams had black head coaches rosenburg 2004 in 1999 there were only 68 female full professors at the 120 phd granting economics departments in the us cswep 1999 this severe underrepre sentation of females and minorities at the highest levels of occupational achievement throughout a wide range of occupations has often been referred to as the glass ceiling 1

patenting and inventive activity on synthetic fibre intermediates abstract the demand pull theory of invention and innovation has drawn much of its support from the work of jacob schmookler on patent time series in this work schmookler found no evidence that scientific discoveries or major inventions had provided the stimulus for important inventions however it is argued here that his method was not well designed to detect such effects any effect of a particular scientific or technological development is likely to occur in a rather narrow area of technology so that detection of science push and technology push will be favoured by the examination of narrow areas of inventive activity manufacturing processes for groups of chemical products subject to similar demand side factors provide convenient such areas in this study time series of patents on processes for eight intermediates for synthetic fibres have been examined they are not consistent with a simple demand pull theory but rather with the view that inventive activity is affected both by demand and by technological opportunity two of the intermediates have been examined in detail and evidence has been presented that in one case a major invention arose from science push and in the other one arose from technology push

the impact of short selling on the price volume relationship evidence from hong kong this paper considers the relationship between traded volume and volatility allowing for the impact of short sales the evidence supports a nonlinear bidirectional relationship between volume and volatility short selling is found to have a significant impact on this relationship and our results suggest i that the hong kong market displays greater volatility following a period of short selling and ii that asymmetric responses to positive and negative innovations to returns appear to be exacerbated by short selling

short interest and the asymmetry of the price volume relationship in the canadian stock market abstract several studies have revealed an asymmetry in the price volume relationship in the equities markets this paper verifies this relationship using canadian data and presents an alternative test of the costly short sales hypothesis based on the volume of outstanding short interest in the stock market contrary to previous studies the empirical tests in this study do not rely on futures markets data but rather measure and compare the effects of relative short interest positions on the price volume relationship for positive and negative price changes the results suggest that the greater the ratio of short positions to the number of shares outstanding the greater the trading volume associated with price increases relative to that accompanying price decreases

will affirmative action policies eliminate negative stereotypes a key question concerning affirmative action is whether the labor market gains it brings to minorities can continue without it becoming a permanent fixture in the labor market the authors argue that this depends on how the policy affects employers beliefs about the productivity of minority workers they study the joint determination of employer beliefs and worker productivity in a model of statistical discrimination in job assignments the authors prove that even when identifiable groups are equally endowed ex ante affirmative action can bring about a situation in which employers correctly perceive the groups to be unequally productive ex post copyright 1993 by american economic association

grade inflation social background and labour market matching a model is presented where workers of differing abilities and from different social backgrounds are assigned to jobs based on grades received at school it is examined how this matching is affected if good grades are granted to some low ability students such grade inflation is shown to reduce the aggregate wage of the lower class workers because employers use social origin as a signal for productivity if grades are less than fully informative moreover the high ability students from the higher class may benefit from grade inflation since this shields them from the competition on the part of able students from the lower classes

stable partnerships matching and local public goods abstract in the presence of local public goods differences in tastes are an important determinant of the way in which partnerships are formed heterogeneity in tastes for private vs public goods produces a tendency to positive assortment and partnerships of couples with similar tastes heterogeneity in tastes for different public goods brings about partnerships of couples with similar tastes only if there is a significant overlap in the distribution of tastes of the two groups to be matched we show that with two public goods we may get negative assortment pure positive assortment being only one of many possibilities

social limits to redistribution in many countries equality of political rights including the right to vote over taxes and transfers goes along with substantial inequality of economic conditions this observation lies at the root of one fundamental issue in political economy one about the factors that limit the extent of redistribution in democracies the conventional economic wisdom on this issue can roughly be summarized by two arguments firstly redistributive taxation may be limited by various kinds of incentive costs of taxation as e g in james a mirrlees 1971 kevin w s roberts 1977 dennis n epple and thomas romer 1991 and thomas piketty 1995 secondly redistribution may be dampened by the lobbying activity of high income groups and by various imperfections inherent to the political process that determines the tax system as e g in gary s becker 1983 and john e roemer 1995 while both arguments offer illuminating insights into the phenomenon of redistribution they are also based on a very crude description of human behavior one which ignores social motivations of action both in the economic and the political sphere the present paper develops an explanation that takes such motivations into account specifically it shows that limits to redistribution may arise when economic inequality has an informational value for social decisions our approach is based upon the following observation many goods and decisions that heavily affect an individual s quality of life are not allocated or made through markets but through social interactions thomas scitovsky 1976 for instance although people have strong preferences over how they are treated by others and over whom they mate with these things are not the object of market transactions a number of sources of satisfaction like conversation dinners and parties playing with others and being observed and admired are nonmarket goods for which a keen social competition between individuals often develops as shown by harold cole et al 1992 the existence of social rather than market competition for some goods can endogenously generate a concern for relative position in the income distribution when information about relative income is private individuals become interested in the observable consumption differentials between them and their social competitors since consumption differentials are influenced by redistributive taxation the political attitudes of people toward redistribution will be shaped by its expected impact on social competition in some identifiable environments this concern for social success may be the crucial factor that limits the extent of redistribution desired by a majority of voters specifically while the middle class may obtain economic benefits from a large amount of redistributive taxation it may oppose an equalization of living standards since this would harm its social success the fear of losing social status in favor of the poor induces the middle class to enter a political alliance with the rich which supports conservative taxation programs in the sociological literature scholars of voting behavior have often suggested that the need for social recognition plays a crucial role in shaping political attitudes seymour m lipset 1967 pointed out that white collar workers tend to be socially valued similarly as those higher in the system and although their income may be only slightly larger than that of manual workers white collars are much more likely to corneo department of economics university of osnabruck rolandstrasse 8 d 49069 osnabruck germany cesifo munich and cepr london gruner department of economics university of mannheim d 68131 mannheim germany iza bonn and cepr london we would like to thank emmanuelle auriol dieter bos peter funk mike hout olivier jeanne peter jonas georg noldeke thomas piketty regis renault john roemer jens weidmann and three anonymous referees for insightful comments and suggestions we have also benefited from the comments of participants at workshops and conferences in barcelona bonn davis jena maastricht magdeburg mannheim montreal munich rotterdam silvaplana tel aviv tilburg toulouse and warwick at which we presented earlier versions of this work financial support from the deutsche forschungsgemeinschaft sfb 303 at the university of bonn is gratefully acknowledged

an investigation of transactions data for nyse stocks using transactions data the behavior of returns and characteristics of trades at the micro level is examined a minute by minute market return series is formed and tested for normality and autocorrelation evidence of differences in return distributions is found among overnight trades trades during the first 30 minutes following the market opening trades at the close and trades during the remainder of the day the latter distribution is found to be normal unusually high returns and standard deviations of returns are found at the beginning and the end of the trading day when the beginningand end of the day effects are omitted autocorrelation in the market return series is reduced substantially a number of patterns in trading are reported this paper empirically investigates the nature of the return generating process and the characteristics of trade size price changes trading frequency and trading interval at the level of individual trades for a large sample of nyse stocks previous studies of market indices have used daily weekly or monthly

does job testing harm minority workers evidence from retail establishments because minorities typically fare poorly on standardized tests job testing is thought to pose an equality efficiency trade off testing improves selection but reduces minority hiring we develop a conceptual framework to assess when this trade off is likely to apply and evaluate the evidence for such a trade off using hiring and productivity data from a national retail firm whose 1 363 stores switched from informal to test based worker screening over the course of one year we document that testing yielded more productive hires at this firm raising mean and median tenure by 10 or more consistent with prior research minorities performed worse on the test yet testing had no measurable impact on minority hiring and productivity gains were uniformly large among minority and nonminority hires these results suggest that job testing raised the precision of screening without introducing additional negative information about minority applicants most plausibly because both the job test and the informal screen that preceded it were unbiased

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

the informational effects of restrictions on short sales some empirical evidence in a world of heterogeneous investors a competitive financial market has two major functions first it is the mechanism by which ownership of the existing supply of risky assets is distributed among investors this is the role which is analyzed in detail by the standard capital asset pricing model capm and its many extensions the second important market function is to aggregate the diverse information held by different investors into a single price most versions of the capm eliminate the information aggregation function by assuming that investors hold homogeneous beliefs with respect to the probability distribution of asset returns exceptions which deal with some aspects of the problem are lintner 7 grossman 4 grossman and stiglitz 5 and figlewski 1 3

invention and innovation in the chemical industry demand pull or discovery push abstract this paper describes a study of the determinants of the rate direction and scale of inventive and innovative activity in the chemical industry over the period 1830 1980 statistical data are interpreted in the light of case study material in three major sectors dyestuffs plastics and pharmaceuticals theories of technical change and economic growth particularly those of schmookler and schmpeter are examined in relation to this material on the chemical industry the findings suggest that the importance of demand pull and discovery push factors and the validity of schmookler s and schumpeter s theories vary over an industry s life cycle

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

shaping the national system of inter industry knowledge exchange vertical integration licensing and repeated knowledge transfer in the german plastics industry we will claim in this paper that it was in particular the above average propensity to share innovative information with customers and competitors which caused the exceptional international competitiveness of the west german plastics industry including chemical firms plastics fabricators and machine makers the system of knowledge exchange of this national cluster was shaped in two main steps in the first half of the 20th century cartellization and mergers were first tolerated and then even supported by the german government it was in this period when german chemical firms formed the vertically integrated i g farben concern which provided an optimal organisational framework to explore the new technological path of plastics after the breaking up of i g farben the firms of the west german chemical firms had to find new ways to maintain inter industry technological co operation in the second half of the 20th century it turned out that they became aware of both contractual and non contractual solutions of bundling standard good and information which were often placed somewhere between market and hierarchy it seems to be no accident that all these different institutions did primarily encourage knowledge exchange between firms in geographical and cultural proximity that is why the knowledge exchanging network of the plastics industry described in this paper has been in particular concentrated on german firms even so the question is still open whether this localisation is just a curiosity limited to a special industry cluster or part of a broader german system of knowledge exchange

statistical discrimination and efficiency this paper asks whether statistical discrimination is a market failure i consider the problem for a utilitarian social planner who operates in an environment that can generate statistical discrimination as an equilibriumphenomenon it is found that there are potential efficiency gains from discrimination in terms of reduced mismatch between workers and jobs whether the solution to the planning problem involves discrimination depends on the trade off between the informational gains of specialization and the losses in terms of increased investment costs

the wage distribution in a model of the assignment of skills to jobs this paper discusses a general equilibrium model of the assignment of heterogeneous workers to heterogeneous jobs both jobs and workers are measured along a continuous one dimensional scale the c

can centralized educational standards raise welfare abstract i examine conditions under which centralized educational standards raise welfare compared to decentralization in this model a uniform centralized standard only raises welfare when there is excessive cross district pooling of graduates by employers high cross district heterogeneity of students and high degrees of egalitarianism can surprisingly favor centralization in other cases centralization can lower standards in all districts including the weakest the cross district patterns of winners and losers among high and low achievers depend crucially on the degree of cross district pooling finally i show that centralized standards with a local option to set higher standards are always welfare improving

a note on aggregation of skills and labor quality we use a unique new data set that combines data on individual workers and their employers to estimate marginal productivity differentials among different types of workers we then compare these to estimated relative wages leading to new evidence on

cheap talk in the classroom how biased grading at school explains gender differences in achievements career choices and wages in this paper i provide a theoretical explanation for the gender differences in education and on the labour market that are observed empirically in most oecd organisation for economic cooperation and development countries including the us within a cheap talk model of grading i show that biased grading in schools results in 1 boys outperforming girls in maths and sciences 2 boys having more top and more bottom achievers in maths and sciences than girls 3 girls outperforming boys in reading literacy 4 female graduates enrolling in university studies more often than male graduates 5 the predominance of female students in arts and humanities at the university 6 the predominance of male students in maths and sciences at the university and 7 the gender wage gap on the labour market for the highly educated copyright 2009 wiley blackwell

the impact of educational standards on the level and distribution of earnings the goal of this paper is to present the following finding an egalitarian policy maker might prefer higher standards than would a policy maker whose goal was to maximize the sum of earnings the result is based on the observation that if workers are differentiated with respect to ability an increase in educational standards will increase the earnings of both the most able and the least able workers the only workers whose earnings fall are those workers who after the increase fail to continue meeting the standard

a simple model of educational standards the author models standards for educational credentials such as high school diplomas standard setters maximize their conception of social welfare knowing that utility maximizing students choose whether to meet the standard the author shows that more egalitarian policymakers set lower standards the median voter would prefer higher standards under symmetric distributions and decentralization lowers standards among identical communities optimal standards do not necessarily fall with increased student preference for leisure deterioration of nonstudent inputs to education or increased student heterogeneity superseding binary credentials by perfect information increases average achievement and social welfare for plausible degrees of heterogeneity egalitarianism and pooling under decentralization

open knowledge disclosure an overview of the evidence and economic motivations abstract this paper reviews current literature on open knowledge disclosure strategies used by firms it is usually acknowledged that for an innovative firm that does not benefit from a natural protection such as lead time advance the best strategy is to keep an innovation secret as long as possible or to protect it through an exclusive patent however in apparent contrast to this traditional view many studies suggest that firms often disclose important parts of their knowledge through scientific publications conferences the internet etc this paper aims to provide an overview first of the evidence supporting the existence of open knowledge disclosure and second of the economic motivations that encourage rational profit seeking firms to adopt these behaviours

explaining downstream innovation by commodity suppliers with expected innovation benefit abstract empirical researchers have observed that occasionally firms that sell variable physical inputs for use in production processes suppliers originate innovations in the process when such innovation is performed by commodity suppliers this phenomenon would appear to contradict previous theory and evidence suggesting that innovation is profit motivated such suppliers do not obviously share in the economic benefits generated by their innovations those would appear to accrue to process using firms this author proposes that downstream process innovation by suppliers can be explained by the increase in demand that the innovation induces which provides the suppliers with an economic return a simple model of firms expected innovation benefit based on this hypothesis when tested on data from a set of innovations in commodity materials using production processes discriminates effectively between supplier and nonsupplier innovations the adequacy of the few predictive variables used further suggests that in practice suppliers of commodities will tend to innovate in a downstream process when 1 they are relatively concentrated 2 the prospective innovations promise to expand the market for the relevant material greatly and 3 the process users are relatively unconcentrated