in search of appropriate methodology from outside the people s republic of china looking in choosing a methodology determines what we can study as well as the range of possible results and conclusions this study took an instrument that had been developed in the west and used extensively in europe and north america to investigate managerial behavior in the people s republic of china for a number of reasons it failed to produce a valid and reliable description of chinese managerial behavior this paper investigates some of the methodogical issues involved in extending western organizational knowledge to the east it raises some fundamental questions about being outside looking in

corporate philanthropic disaster response and ownership type evidence from chinese firms response to the sichuan earthquake this article examines whether the charitable giving amount and likelihood of firm response to catastrophic events relate to firms ownership type using a unique dataset of listed firms in china where state ownership is still prevalent based on the data of chinese firms response to the 2008 sichuan earthquake we find that the extent of corporate contributions for state owned firms following this disaster is less than that for private firms state owned firms are also less likely to respond in this disaster compared to private firms the results also reveal that firm size profitability geography cash resource available and leverage affect firms philanthropic disaster response behavior in china

the value of corporate voting rights and control a cross country analysis this paper measures the value of corporate voting rights specifically of the control block of votes in a sample of 661 dual class firms in 18 countries in 1997 a consistent measure across countries is proposed the measure is adjusted for takeover probability block holding costs and dividend and liquidity differences between the share classes the value of controlblock votes varies widely across countries it is close to half of firm market value in south korea andclose to zero in finland the value of control block votes is interpretedas a lower bound for actual private benefits of the controlling shareholder the legal environment law enforcement investor protection takeover regulations andpower concentrating corporate charter provisions explain 68 of the cross country variation in the value of control block votes

a lack of insight do venture capitalists really understand their own decision process abstract what decision criteria do venture capitalists vcs use to make their investment decisions this question has received much attention within entrepreneurship literature i e wells 1974 poindexter 1976 tyebjee and bruno 1984 macmillan seigel and subba narasimha 1985 macmillan zeman and subba narasimha 1987 robinson 1987 timmons et al 1987 sandberg schweiger and hofer 1988 hall and hofer 1993 zacharakis and meyer 1995 for a number of reasons first vc backed ventures achieve a higher survival rate than non vc backed businesses kunkel and hofer 1990 sandberg 1986 timmons 1994 second a better understanding of the decision process may lead to even better survival rates finally entrepreneurs seeking venture funding benefit if they understand what factors are most important to the vc although past research has greatly contributed to our understanding of the decision it may be biased and somewhat misleading the majority of past studies rely on post hoc methodologies e g interviews and surveys to capture the decision process post hoc methods assume that vcs can accurately relate their own decision processes but studies from cognitive psychology suggest that people in particular experts are poor at introspecting introspection is subject to rationalization and post hoc recall biases using social judgment theory and the associated lens model as a framework the current study investigates how well vcs introspect about their own decision process and by extension whether the past research efforts are biased the current research uses policy capturing a real time method common in cognitive psychology to capture the vc s actual theories in use versus their espoused theories hitt and tyler 1991 policy capturing requires that vcs make a series of real time decisions based on various information factors regression analysis of each vcs decision captures how important each of the information factors is to her his actual decision process after the vcs make their decisions they provided a weighting of how they believe they used the information factors comparing the captured decision policies to stated decision policies provides a measure of vc insight the findings suggest that vcs are not good at introspecting about their own decision process even within the confines of a controlled experiment which greatly reduces the amount of information considered vcs lacked strong understanding of how they made decisions most decision makers would like to have all relevant information available for their decision however as more information becomes available insight diminishes finally this study finds that vcs are very consistent in their decision process even though they do not necessarily understand how they make their decisions vcs face a plethora of information when making an investment decision i e business plan outside consultants due diligence etc it may be difficult for vcs to truly understand their intuitive decision process because of all the noise caused by this information overload this lack of systematic understanding impedes learning vcs cannot make accurate adjustments to their evaluation process if they do not truly understand it therefore vcs may suffer from a systematic bias that impedes the performance of their investment portfolio the methodology used in this experiment can be modified and used as a training tool for active vcs in addition the consistent nature of vc decision making even if they do not have a strong understanding of that process is favorable to the development of decision aides decision aides can minimize the danger of salient information e g the lead entrepreneur is a winner clouding the vc s judgment past research also needs to be interpreted in a new light although vcs undoubtedly use some of the information cited in past studies the relative importance of that information needs to be reevaluated vcs may not for instance rely most on the background of the entrepreneurial team in addition it is likely that the past studies provide more information factors than vcs actually use people have a tendency to overstate the information they believe they relied upon and to use far less information typically three to seven factors to make a decision than they actually think they use the methodology used in this experiment has the potential to identify the more relevant information factors cited in previous work even though vcs are experts in the new venture funding realm their decision process has room for improvement almost 40 of all backed ventures fail to provide a return to the vc considering the billions invested each year a modest improvement in the failure rate can have a substantial impact on venture portfolio returns that improvement starts by better understanding the decision process this study is a step in that direction

cash by any other name evidence on labelling from the uk winter fuel payment standard economic theory implies that the labelling of cash transfers or cash equivalents e g child benefits food stamps should have no effect on spending patterns the empirical literature to date does not contradict this proposition we study the uk winter fuel payment wfp a cash transfer to older households exploiting sharp eligibility criteria in a regression discontinuity design we find robust evidence of a behavioural effect of the labelling on average households spend 41 of the wfp on fuel if the payment was treated as cash we would expect households to spend approximately 3 of the payment on fuel

targeting rules for monetary policy abstract we develop a framework for the analysis of targeting rules for monetary policy derive the optimal money supply rule and use an explicit criterion to evaluate the relative desirability of other targeting rules governing the money supply process

does consumer irrationality trump consumer sovereignty scholars working on the border of economics and psychology have documented many contexts in which individual decision making is unreliable and might be improved by paternalistic interventions against this mounting body of negative evidence economists default belief in consumer sovereignty has been motivated primarily by theory rather than evidence the goal of the present study is to see whether there is direct evidence supporting economists faith in consumer sovereignty in a simple context we address this question by presenting direct evidence that consumers own purchases generate between 10 and 18 more value per dollar spent than items received as gifts

the deadweight loss of christmas reply we welcome bradley j ruffle and orit tykocinski s 1999 attempt to reconcile the difference in findings between our paper solnick and hemenway 1996 and joel waldfogel s 1993 in both studies subjects were asked to estimate the cost and the value to them of gifts they had received waldfogel found that gift recipients typically valued their gifts at only 87 percent of their estimated cost to the givers by contrast our sample of adults from train stations and airports and from faculty staff and graduate students at harvard reported valuing their gifts at more than twice the estimated cost ruffle and tykocinski examine the wording of the question used to elicit the valuation of the gift waldfogel s subjects were economics students hence he could ask them directly what amount of cash would make them indifferent between the gift and a cash alternative since we wanted to question people without economics training we asked respondents to name the amount of money that would make them equally happy as receiving the gift ruffle and tykocinski find that the change from waldfogel s wording to ours results in a 15to 20 percent increase in estimated value while leaving accompanying cost estimates unchanged the wording of the question clearly matters but to pose a question that only those with training in economics can answer limits the scope of inquiry in the study by ruffle and tykocinski 10 percent of the psychology students raised their hands to ask for a definition of indifferent we wonder how this concept was explained to them what those who asked and those who did not ask made of the term and what set of emotions might have been activated had waldfogel used our question rather than finding any deadweight loss a yield of 87 percent he would have reported gifts being valued very close to cost 100 0 or 104 4 percent thus ruffle and tykocinski take us partway towards an understanding of the difference in our findings and waldfogel s yet a wide gulf remains ruffle and tykocinski reject our claim that sample selection may be largely responsible for the difference between our results and waldfogel s it does appear that results do not vary a great deal with the type of undergraduate questioned whether a student is enrolled in a psychology or an economics class or in a more or less prestigious institution but the real issue of sample selection has not been adequately addressed ours remains the only study to use adults living independently as subjects we note that ruffle and tykocinski s subjects performed poorly in estimating costs for example psychology students estimated the cost of the mask at 603 shekels and economics students at 375 shekels actual retail price was 800 shekels this incidental finding supports our belief that college students may not be full fledged participants in many market or gift exchange processes it is certainly possible that the average gain in gift exchange may be lower than the 214 percent measured in our survey but we remain convinced that even examining solely the material value to the recipient gift giving can and often does result in a gain rather than a deadweight loss

on the policy ineffectiveness proposition and a keynesian alternative a rejoinder i the basis of rush and waldo s rw results is the introduction of a war dummy variable in the dg equation this is however difficult to justify in the context of a rational expectations model under incomplete learning wars by their very nature are unique events and it is not clear how the public are supposed to learn the quantitative effects that the ending of three totally different wars may have had upon the growth of real government expenditure the fact that in i946 the public knew that world war ii was over does not mean that they could also estimate its precise quantitative effect on government expenditure rw estimate their dg equation using data for the whole of the period i943 73 and i943 85 thus implicitly assuming that all these data were available to the public in i946 for the computation of the coefficient of the war dummy in the dg equation but in i946 the public could not possibly have known about the timing and the intensities of the korean or the vietnam wars the assumption of complete learning that underlies the rational expectations hypothesis in general and rw s version of the nc model in particular is especially troublesome when the model contains dummy variables that correspond to unique events

real options analysis and strategic decision making the real options approach is frequently advocated as an approach that offers a positive and radical reassessment of the value of risk and exploration we examine a recent case where merck used the real options approach to justify an investment in an r d project this case is used to highlight some of the problems associated with using real options we note that the assumptions incorporated in most standard option valuation models can conflict with the conclusions reached by strategic analysis as a result users of real options models should understand the quantitative aspects of these models and may often need to create a customized model for each situation the difficulty of developing customized models may explain in part the limited use of the real options approach in strategic analysis

on real and sticky price theories of the business cycle after presenting some facts about the growth of government in western industrialized countries possible causes of this development are analyzed from a public choice perspective next some empirically tested theories which seek to explain this growth are discussed finally possible consequences for efficiency and individual liberty are examined it is shown that both the number and size of interest groups age of democracy as stated by mancur olson 1982 and the increasing share of government expenditure in gdp seem to exert a negative influence on the growth rate of gdp copyright 1986 by ohio state university press

the fragility of sunspots and bubbles abstract expectational stability e stability is used to examine the multiplicity of solutions in a range of rational expectations models of interest including muth s inventory model and an overlapping generations model in these model it is found that sunspot and other rational bubble solutions are either e unstable or weakly but not strongly e stable

time delay complexity and support for taxation people often experience the benefits of taxation over time we design an intertemporal market experiment with negative externalities to examine how delaying the benefits of taxation affects support for taxes we find that when negative externalities occur immediately people learn to adopt pigouvian taxes which are aimed at reducing negative externalities and restoring market efficiency by contrast when negative externalities are delayed people are less receptive to taxation this effect persists over time our data reveal that the strong negative delay effect can be explained in large part by narrow bracketing and the increased perceived complexity of the environment rather than by time discounting per se we argue and demonstrate that increasing the transparency of intertemporal tradeoffs can effectively promote support for taxation

corporate social responsibility theories mapping the territory the corporate social responsibility csr field presents not only a landscape of theories but also a proliferation of approaches which are controversial complex and unclear this article tries to clarify the sit uation mapping the territory by classifying the main csr theories and related approaches in four groups 1 instrumental theories in which the corporation is seen as only an instrument for wealth creation and its social activities are only a means to achieve economic results 2 political theories which concern themselves with the power of corporations in society and a responsible use of this power in the political arena 3 integrative theories in which the corporation is focused on the satisfaction of social demands and 4 ethical theories based on ethical responsibilities of corporations to society in practice each csr theory presents four dimensions related to profits political performance social demands and ethical values the findings suggest the necessity to develop a new theory on the business and society relationship which should integrate these four dimensions

corporate philanthropic giving advertising intensity and industry competition level this article examines whether the likelihood and amount of firm charitable giving in response to catastrophic events are related to firm advertising intensity and whether industry competition level moderates this relationship using data on chinese firms philanthropic response to the 2008 sichuan earthquake we find that firm advertising intensity is positively associated with both the probability and the amount of corporate giving the results also indicate that this positive advertising intensity philanthropic giving relationship is stronger in competitive industries and firms in competitive industries are more likely to donate this study thus provides evidence suggesting that even in the wake of catastrophic events corporate philanthropic giving is strategic

a critique of the proposed tests of the natural rate rational expectations hypothesis the failure of the governments of most industrialised countries over the past decade to deal successfully with the problems of rising unemployment and high and often accelerating rates of price and wage inflation has revived interest in the pre keynesian macro economics of sound money and has renewed the controversy of the 1930 s over what governments should or should not do if they wish to achieve full employment with reasonable price stability in democratic societies keynesian economics has come under attack both by those who primarily oppose interventionist policies on ideological grounds and by the so called new classical macro economists who adhere to the natural rate of unemployment hypothesis nrh advanced by phelps i967 and friedman i 968 and the hypothesis of rational formation of expectations reh originally due to muth i96i armed with this joint natural rate rational expectations nr re hypothesis the new classical macro economists have argued that in a world capable of being represented by linear or log linear relations with a unique and stable equilibrium and no information discrepancy between the government and the private sector no government macro economic policy whether monetary or fiscal no matter how ingeniously formulated and how effectively implemented can have any systematic or lasting impact upon the level of output or the rate of unemployment 2 clearly this fundamental policy

recent developments in macroeconomics underlying the existence of macroeconomics as a separate field of study are the phenomena of economy wide fluctuations of output and prices and sometimes persistent high levels of unemployment two basic views of macroeconomic behavior have persisted even as conceptual innovati ons and the application of more powerful analytic and empirical techn iques have brought significant changes in understanding of the macroe conomy copyright 1988 by royal economic society

how mncs choose entry modes and form alliances the china experience this study examine two dimensions of firms foreign market entry strategy mode of entry and formation of alliances based on the existing literature we propose a model that describes how host country home country and industry specific factors affect foreign firms decisions on how they enter the market and whether they will enter with a partner firm or not the model also describes how operation related factors i e the location and the level of local government affect these decisions seven major hypotheses were tested using a longitudinal sample of 2 998 foreign business activities in china between 1979 and 1993 our sample consists of foreign investing firms from the u s europe japan and other asian countries by choosing china as a host country the study offers insights into how firms of different regional groups adapted their strategies to a changing host environment

corporate social responsibility ownership structure and political interference evidence from china prior research suggests that ownership structure is associated to corporate social responsibility csr in developed countries this article examines whether and how ownership structure affects csr in emerging markets using chinese firms social responsibility ranking our empirical evidences show that for non state owned firms corporate ownership dispersion is positively associated to csr however for state owned firms whose controlling shareholder is the state this relation is reversed we attribute the reversed relationship to political interferences and further test this hypothesis by demonstrating that regional economic development is negatively related to csr for state owned firms due to decreased political interference in more developed areas this study is the first to directly examine the relationship between the dispersion of corporate ownership and csr in emerging markets and our results depict that it is important to consider ownership type in assessing csr in emerging market where state ownership is still prevalent such as china the results also reveal that firm size profitability employee power leverage and growth opportunity affect csr in china

a quick refresher course in macroeconomics this paper presents a non technical discussion of some of the important developments in macroeconomics over the past twenty years it considers three broad categories of research first it discusses how the notion of rational expectations has affected economists views on the role of economic policy the debate over rules versus discretion and empirical work in macroeconomics second it discusses various new classical approaches to the business cycle including imperfect information theories real business cycle theories and sectoral shift theories third it discusses various new keynesian approaches to the business cycle includes theories based on general disequilibrium labor contracting and menu costs this abstract was borrowed from another version of this item

a disequilibrium model of rational expectations for the u k so far the new classical model and the policy ineffectiveness proposition have been tested essentially within an equilibrium framework and disequilibrium methods of estimation have been used to estimate the labor market models in this paper the authors develop an aggregate goods market model for the united kingdom in which the new classical rational expectations hypothesis and the disequilibrium approach are integrated their estimates of the model show that the structural parameters are well determined and price adjustment in the united kingdom is very sluggish therefore the new classical policy ineffectiveness proposition is not valid for the united kingdom copyright 1991 by royal economic society

shareholder wealth maximization business ethics and social responsibility the primary objective of this article is to develop a framework for analyzing the ethical foundations and implications of shareholder wealth maximization swm distinctions between swm and the more widely examined construct of profit maximization are identified the most significant being the central role played in swm by the market mechanism for pricing the corporation s securities it is argued that empirical tests concerned with evaluating the ethical implications of swm will almost surely involve a joint hypothesis a number of recent empirical studies aimed at testing hypotheses with explicit ethical content are reviewed

markets gift cards the mobil oil company introduced the first retail gift card that recorded value on a magnetic strip in 1995 in under a decade such gift cards replaced apparel as the number one item sold during the christmas season this study will discuss the reasons for the strong surge in the gift card market it will then consider the value of gift cards as an intermediate option between two alternatives purchasing a physical gift which could possibly be returned or exchanged versus giving cash empirical data on the resale price of gift cards from an internet auction website provide information on the value that recipients place on gift cards suggesting that the difference between the cost of a gift card to the giver and its value to the recipient is substantial although perhaps not quite as large as the parallel gap involved in physical gifts

gifts as economic signals and social symbols gift giving has often puzzled economists especially because efficient gifts like cash or giving exactly what a person asks for seem crass or inappropriate it is shown in a formal game theoretic model that gifts serve as signals of a person s intentions about future investment in a relationship and inefficient gifts can be better signals other explanations for the inefficiency of gift giving are advanced and some stylized facts about gift giving practices are described many of which are consistent with the signaling view of gifts

individual preferences monetary gambles and stock market participation a case for narrow framing we argue that narrow framing whereby an agent who is offered a new gamble evaluates that gamble in isolation may be a more important feature of decision making than previously realized our starting point is the evidence that people are often averse to a small independent gamble even when the gamble is actuarially favorable we find that a surprisingly wide range of utility functions including many nonexpected utility specifications have trouble explaining this evidence but that this difficulty can be overcome by allowing for narrow framing our analysis makes predictions as to what kinds of preferences can most easily address the stock market participation puzzle

mental budgeting and consumer decisions consumers often set budgets for categories of expenses e g entertainment and track expenses against their budget because budgets cannot perfectly anticipate consumption opportunities people may earmark too much or too little money for a particular category this leads them to overconsume or underconsume goods in that category the results of three studies suggest that consumers do indeed set budgets and that budgeting may lead to underconsumption to show that consumers track expenses the studies demonstrate that budgeting effects are larger for purchases that are highly typical of their category such purchases reduce the amount people spend in a category and block the purchase of other typical items the studies control for satiation and income effects thus budgeting adds predictive power to standard economic consumer theory

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

targeting nominal income a note this paper compares nominal income and monetary targets in a standard aggregate demand aggregate supply framework if the desirability of policies is measured by their effect on the unconditional variance of output nominal income targeting is preferable if and only if the aggregate elasticity of demand for real balances is greater than one this is precisely the opposite of the condition that in bean 1984 is sufficient to make nominal income targeting preferable this points out the importance of specification of supply and of objective function in work on nominal income targeting this abstract was borrowed from another version of this item

timid choices and bold forecasts decision makers have a strong tendency to consider problems as unique they isolate the current choice from future opportunities and neglect the statistics of the past in evaluating current plans

estimating the value of an in kind transfer the case of food stamps the value of one in kind transfer food stamps is estimated by evaluating the experience of an actual conversion from stamps to cash in puerto rico in 1982 the evidence indicates that the cashout of the stamps had no detectable influence on food expenditures the explanation partly lies in the distribution of expenditures for the stamps were inframarginal for most recipients however some evidence indicates that trafficking in stamps was widespread as well including indirect evidence from estimation of the piecewise linear constraint model copyright 1989 by the econometric society

the output inflation trade off when prices are costly to change the output inflation trade off is investigated in a rational expectations equilibrium economy in which costly price setting makes it inefficient for agents to vary their prices at every instant it is shown that sticky prices are not some exogenous source of output fluctuation but result from the monetary policy process an economy with slow and counterinflationary money growth exhibits staggered changes in sticky prices as assumed in some new keynesian analyses an economy with fast money growth and a high degree of monetary accommodation exhibits either flexible prices or bunched frequently changing sticky prices

on endogenous competitive business cycles the belief that the long run equilibrium of a competitive monetary economy that does not experience any exogeneous shocks whether originating from the external environment or from policy should be modelled as a state that is stationary or perhaps growing at a constant rate seems to be deeply rooted in the mind of some economists

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

managerial autonomy of state owned enterprises determining factors the present paper reports on managerial autonomy of state owned enterprises soes or its reverse the control which is exerted by government and supervising public authorities on soes first it examines the types of control applied using evidence from a sample of 110 greek soes the paper identifies certain distinct dimensions of control related to strategic business boundary issues pricing decisions resource acquisition and mobilisation issues second environmental and organisational determinants of the control intensity are identified results broadly suggest that the intensity of control as perceived by enterprise managers is i positively related to dependence on the state for resources to enterprise size and to political visibility i e social orientation of product market strategy and ii negatively related to market competition and demand unpredictability an interpretation of the results is attempted drawing on wider organisational social and economic theories policy implications are discussed

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

new classical macroeconomics a sympathetic account the essential ingredients of new classical nc macroeconomics are 1 adoption of the equilibrium approach to model construction 2 acceptance of the natural rate hypothesis 3 a belief in the superiority of policy based on rules and 4 a strong skepticism regarding the empirical relevance for macroeconomic issues of rational bubble phenomena recent keynesian analyses stressing the interaction of monopolistic competition with pricechange menu costs are not incompatible with the nc approach but have not been highly successful a nc policy strategy that recognizes current weaknesses in macroeconomic understanding is described and rationalized and an analytical basis for nc skepticism regarding bubbles sunspots etc is outlined

spousal control and intra household decision making an experimental study in the philippines i elicit causal effects of spousal observability and communication on financial choices of married individuals in the philippines when choices are private men put money into their personal accounts when choices are observable men commit money to consumption for their own benefit when required to communicate men put money into their wives account these strong treatment effects on men but not women appear related more to control than to gender men whose wives control household savings respond more strongly to the treat ment and women whose husbands control savings exhibit the same response changes in information and communication interact with underlying control to produce mutable gender specific outcomes

adaptive behavior and economic theory the relationship between psychological and economic views of behavior once a subject of heavy dispute is now understood in a very similar way by practitioners of both these disciplines and of our sister social sciences in general terms we view or model an individual as a collection of decision rules rules that dictate the action to be taken in given situations and a set of preferences used to evaluate the outcomes arising from particular situation action combinations these decision rules are continuously under review and revision new decision rules are tried and tested against experience and rules that produce desirable outcomes supplant those that do not i use the term adaptive to refer to this trial anderror process through which our modes of behavior are determined if one is interested in modeling particular decisions in any very explicit way it is obviously necessary to think about rather narrow aspects of an individual s entire set of decision rules his or her personality experimental psychology has traditionally focused on the adaptive process by which decision rules are replaced by others in this tradition the influence of the subject s or as an economist says the agent s preferences this essay uses a series of examples to illustrate the use of rationality and adaptation in economic theory it is argued that these hypotheses are complementary and that stability theories based on adaptive behavior may help to narrow the class of empirically interesting equilibria in certain economic models an experiment is proposed to test this idea

recent developments in the theory of rules versus discretion policymaker this perspective on rules versus discretion was changed by kydland and prescott 1977 who looked at rules as a form of commitment a commitment amounts to a binding contract which specifies in advance the actions that someone will take possibly contingent on some exogenous variables that everyone can observe in contrast under discretion a person promises only to take those future actions that will best further his objectives later on such promises are easy to keep thus discretion is the special case of a rule or contract in which none of today s provisions restrict a person s future actions in the area of private business dealings it is natural to think about optimal forms of contracts which would not usually be pure discretion similarly for public policy the perspective becomes the optimal form of rules or prior restrictions even the smart benevolent policymaker is likely to desire and use

opening the black box of csr decision making a policy capturing study of charitable donation decisions in china this policy capturing study conducted in china investigated the cognitive basis of managerial decisions to make a corporate charitable donation a global issue in the context of corporate social responsibility csr research and practice participants n 376 responded to a series of scenarios manipulating pressure from the five stakeholders government customers competitors employees and shareholders most commonly addressed by csr research the independent variables examined included organizational factors industry ownership previous company donation firm size firm age and perceived ceo attitudes toward charity and the participants personal values results indicate a large positive effect of shareholder and governmental pressure on the decision with lesser positive effects from customers and competitors surprisingly employee pressure had a negative effect on the decision to make a charitable donation further personal values and perceived ceo attitudes toward charity were significantly related to the decisions participants made in line with our theorizing the findings indicate that a combination of personal organizational and institutional factors was salient in the minds of decision makers

narrow bracketing and dominated choices an experiment by tversky and kahneman 1981 illustrates that people s tendency to evaluate risky decisions separately can lead them to choose combinations of choices that are first order stochastically dominated by other available combinations we investigate the generality of this effect both theoretically and experimentally we show that for any decisionmaker who does not have constant absolute risk averse preferences and who evaluates her decisions one by one there exists a simple pair of independent binary decisions where the decisionmaker will make a dominated combination of choices we also characterize as a function of a person s preferences the amount of money that she can lose due to a single mistake of this kind the theory is accompanied by both a real stakes laboratory experiment and a large sample survey from the general u s population replicating tversky and kahneman s original experiment where decisionmakers with prototypical prospect theory preferences will choose a dominated combination we find that 28 of the participants do so in the survey we ask the respondents about several hypothetical large stakes choices and find higher proportions of dominated choice combinations a statistical model that estimates preferences from the survey results is best fit by assuming people have utility functions that are close to prospect theory value functions and that about 83 of people bracket narrowly none of these results varies strongly with the personal characteristics of participants we also demonstrate directly that dominated choices are driven by narrow bracketing when we eliminate the possibility of narrow bracketing by using a combined presentation of the decisions the dominated choices are eliminated in the laboratory experiment and are greatly reduced in the survey

targeting nominal income an appraisal the practice of setting target growth rates for a year or more ahead for some measure of the mofiey supply is now followed by many industrialised countries however it has been suggested by a number of authors e g meade i978 in his nobel prize lecture tobin i980 in his retrospective on stabilisation policy brittan i98i that it would be more sensible to pursue targets for nominal income rather than the money supply meade for instance argues that controlling nominal income is in any case the ultimate goal of those who favour fixed monetary targets and that an excessive concentration on the means rather than the end is confusing to private agents and can lead to undesirable fluctuations in the demand for output when velocity shifts he goes on to advocate that nominal income targets should be linked to the development of wage fixing institutions designed to mimic competitive behaviour in this paper we examine the implications of such a proposal for the performance of the economy in the context of a simple stochastic macroeconomic model under rational expectations a contracting framework is adopted in which the wage is fixed in a state of uncertainty about future levels of demand and productivity the objective of the authorities is to minimise the divergence of output from its full information equilibrium level if labour supply is inelastic then it turns out that maintaining the level of nominal income is actually the optimal policy if labour supply is elastic nominal income targetry provides an optimal response to demand is lm shocks but a suboptimal response to productivity shocks however a sufficient condition for a nominal income target to be preferable to a fixed money supply target is that the price elasticity of aggregate demand be less than unity the paper concludes by examining the implications of pursuing target growth rates rather than levels it should be conceded at the outset that there are several pertinent issues not addressed such as the greater comprehensibility of nominal income targets to private agents or the possibility that nominal income targets may leave the authorities with too much discretion e g poole i980 the issue of labour market reform is also ignored this is an enormous subject which it would be impossible to do justice to here see for instance meade s own analysis of the problem in meade i982 such reforms might be expected to affect the parameters of the model nevertheless since changes in labour market practices are neither a precondition for nor a logical consequence of nominal income targets an independent analysis of the macrceconomic implications of the latter is still highly relevant

expectational stability and the multiple equilibria problem in linear rational expectations models linear models involving expectations of future endogenous variables generally have multiple rational expectations equilibria this paper investigates the stability of solutions in the disequilibrium sense of whether given a small deviation of expectations functions from some rational expectations equilibrium the system returns to that solution under a natural revision rule weak and strong local stability are distinguished stability conditions are calculated for a simple general linear model and applied to two macroeconomic examples in some cases there is a unique stable equilibrium in other cases a continuum of equilibria forms a weakly but not strongly stable class

heterogeneity in price rigidity evidence from a case study using microlevel data we combine two data sets to study price rigidity the first consists of weekly time series of retail wholesale and spot prices for twelve products these time series contain two exogenous cost shocks we find that prices exhibit more rigidity in response to the second shock than the first the second data set consists of all publicly available information about the shocks content analysis of these information reveals that the first shock is larger and more persistent and the market has more information on it than the second we conclude therefore that prices are more flexible in response to cost shocks that are larger that are more persistent and on which market participants have more information

does anticipated monetary policy matter an econometric investigation a heated debate has arisen over the policy ineffectiveness proposition associate with the work of lucas sargent and wallace it postulates that anticipated aggregate demand policy will have no effect on business cycle fluctuations so that one deterministic feedback policy rule is as good as any other from the point of view of stabilizing the economy this paper develops a methodology for empirically analyzing rational expectations models displaying this neutrality result and then applies it to the important question of whether anticipated monetary policy matters to the business cycle

on the policy ineffectiveness proposition and a keynesian alternative one of the most controversial macroeconomic developments of the last decade has been the rise of the so called new classical nc approach to macroeconomic theory and policy lucas i972 sargent and wallace i975 and barro i 976 have presented models which combine the friedman i968 phelps i970 natural rate theory with assumptions of market clearing and rational expectations as is well known these models deliver the striking result that the mean values of real variables cannot be affected by the government s monetary policy the publication of the theoretical work establishing the impotency result led to much empirical testing of the nc models one of the most successful approaches from the point of view of nc advocates is contained in a series of papers by barro i977 i978 i98i barro and rush i980 and rush i986 recently pesaran i982 has questioned barro s results and claimed that once an implausible assumption is discarded barro s work can be rejected in favour of a keynesian alternative because pesaran has put forth an explicit counter model to barro s work his results are potentially quite important this paper examines in detail pesaran s work and conclusions

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

broad and narrow bracketing in gift certificate spending abstract we survey 1050 consumers who have just redeemed one or more open loop gift certificates to learn whether they view gift certificate income cash gifts and non gift income as substitutes we find that the majority 83 of recipients spend the certificates in the same way as cash the other respondents 17 bought an item they would not have bought otherwise but adjustments in their shopping pattern do not seem to result from constraints in redeeming the certificates 80 of all respondents in this group says they have used the certificate to buy an item they really love to have while inconsistent with standard microeconomic demand theory this behavior can be explained by narrow bracketing in spending gift certificates these consumers consider a limited choice set of nice personal items our data show that females are more likely to narrow bracket gift certificate income and that positive reciprocity towards the giver induces narrow bracketing in case the giver is a household member who suggests to buy a particular item using the certificate previous studies have found that both giving in kind gifts waldfogel 1993 as giving gift cards offenberg 2007 entail a welfare loss of 10 30 when compared to giving cash we find that the welfare effects of open loop gift certificates among users are limited the consumption of broad bracketing consumers is unaffected and narrow bracketing consumers seem to value the possibility to separate gift certificate income from other income sources

the labeling effect of a child benefit system child benefit systems exist in many countries while they show a lot of differences in terms of eligibility rules amounts involved and implementation tax deduction tax credit or direct benefit the common motivation for their existence is to increase children s welfare in the dutch child benefit system the case i focus on in this paperone of the parents usually the mother is entitled to an untaxed child benefit amount which only depends on the child s age and the number of children in the household thus child support does not depend on household income marital status or labor market status as a result child benefit is exogenous to the household given the presence of children this is in contrast with the situation in many other countries including germany france the united kingdom and the united states where government provided child support is partly means tested see jonathan bradshaw et al 1993 in the netherlands child benefit is generally a nonnegligible addition to the household income the median share of child benefit in the total net income of households with children is 8 percent on the national level expenditures on child benefits amount to 1 2 percent of gnp the use of the child benefit is completely at the discretion of the parent there are no legal requirements that a certain amount be spent on particular goods or services nor does the government provide any guidelines regarding expenditure on children a policy question that arises is to what extent children benefit from child benefits standard microeconomic demand theory allows no role for effects of the composition of income given the fungibility of income sources it is only the sum of income components that is relevant in explaining expenditure patterns thus within that framework the answer would be that the marginal propensity to consume child goods from one guilder of child benefits is no different than from one guilder of any other income source in the more general class of gametheoretic models of household behavior however the composition of household income will generally affect expenditure patterns see e g shelly j lundberg and robert a pollak 1993 and martin browning et al 1994 if fathers and mothers have different preferences and mothers have control over child benefits the effect of child benefits on expenditures will differ from the effect of other income sources lundberg et al 1997 provide empirical evidence showing that a transfer of control over child benefits from fathers to mothers in the united kingdom due to a change in legislation resulted in a significant increase in expenditures on child clothing daniela del boca and christopher j flinn 1994 have analyzed the effect of income composition on expenditure decisions of divorced mothers they find that the coefficients associated with child support and alimony income differ from those for other income in engel curves for expenditures on childspecific goods their results can be explained in terms of a noncooperative nash model in which the child support transfer decisions of the noncustodial father and the expenditure decisions of the mother are determined simultaneously in contrast to del boca and flinn s analysis in which child support is a decision variable the present paper focuses on the possible differential effect of government provided child support which is truly exogenous in this paper i analyze the effects of child benefits on expenditures by running regressions in which child benefit enters as a separate explanatory variable the enipirical analysis is based on a time series of 17 cross section consumer expenditure surveys in the netherlands covering the period 1978 through 1994 it is important to note that in a single cross section it department of economics university of groningen p o b 800 9700 av groningen the netherlands e mail p kooreman eco rug nl i am indebted to two anonymous referees for constructive comments helpful comments were also provided by rob alessie maarten allers chris bojke werner de bondt bert schoonbeek and tom wansbeek i thank vincent linderhof for organizing the data financial support was provided by the dutch organization for scientific research nwo homes project grant

some further evidence on the policy ineffectiveness proposition nonnested hypothesis tests are used to evaluate the keynesian and three variants of the new classical output equations the author s results based on the u s data show that the keynesian equation could not be rejected by the new classical equations for the periods 1946 85 and 1946 89 when the new classical equations are tested against the keynesian alternative with one minor exception the latter always rejected the former copyright 1992 by royal economic society

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

does giving lead to getting evidence from chinese private enterprises enterprise philanthropy is practiced in a very unique and rudimentary form in china based on a unique random survey data on 3837 chinese private enterprises conducted in 31 provinces of china in 2006 i find the significant positive relationship between enterprise philanthropy donation and enterprise profitability and the result supports the political and institutional power view of enterprise philanthropy in the latest development of china simply put chinese private enterprises carried out philanthropy activities to better protect property rights and nurture political connections which in turn leads to better enterprise profitability the result is even stronger in institutions weaker provinces

the deadweight loss of christmas when economists comment on holiday gift giving it is usually to condone the healthy effect of spending on the macroeconomy however an important feature of gift giving is that consumption choices are made by someone other than the final consumer a potentially important microeconomic aspect of gift giving is that gifts may be mismatched with the recipients preferences in the standard microeconomic framework of consumer choice the best a gift giver can do with say 10 is to duplicate the choice that the recipient would have made while it is possible for a giver to choose a gift which the recipient ultimately values above its price for example if the recipient is not perfectly informed it is more likely that the gift will leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash in short gift giving is a potential source of deadweight loss this paper gives estimates of the deadweight loss of holiday gift giving based on surveys given to yale undergraduates i find that holiday gift giving destroys between 10 percent and a third of the value of gifts while these recipients may be unrepresentative of the u s population their gifts are not necessarily unrepresentative holiday expenditures average 40 billion per year implying that a conservative estimate of the deadweight loss of christmas is a tenth as large as estimates of the deadweight loss of income taxation i also explore how deadweight loss and the tendency to give cash gifts vary with the relationship and age difference between giver and recipient i find that gifts from friends and significant others are most efficient while noncash gifts from members of the extended family are least efficient and destroy a third of their value i develop a simple expected utility model to explain the decision to give cash as opposed to in kind gifts the data are consistent with the model cash gifts are most common from the sorts of givers whose noncash gifts have the lowest expected value to recipients given their cost and high variability in recipient valuation

beyond demand and supply curves in macroeconomics this paper surveys recent issues in macroeconomics from the viewpoint of dynamic economic theory the need to look beyond demand and supply curves and the insights that come from doing so are emphasized examples of issues in debt management and fiscal policy are analyzed

expenditure decisions of divorced mothers and income composition in this paper we analyze the relationship between the income sources of custodial divorced parents and their expenditure patterns we use data from the consumer expenditure survey to directly investigate the issue of whether or not divorced mothers receiving child support income spend larger amounts on child goods than those not receiving child support holding total household income constant by comparing the estimated coefficients on child support income and other income in an endogenous engel curve specification we argue that we can classify child goods as being public or private and say something about the expenditure patterns of noncustodial fathers under a nash equilibrium model of parental expenditures on public child goods and some plausible assumptions regarding the manner in which child support transfer decisions are made by noncustodial fathers our empirical results indicate that income composition does affect the expenditure patterns of divorced mothers and that consumption externalities exist even among divorced parents

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

a model of income unemployment and inflation for the usa a simple three equation macroeconomic model is developed to explain the dynamics of output umemployment and inflation for the usa the model is estimated with the annual data for 1946 1989 insights gained through some recent developments are used to specify and estimate the model

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

the impact of food stamps on food expenditures rejection of the traditional model for food stamp recipients whose normal food purchases exceed their coupon allotment the traditional economic model predicts that the impact of food stamps on food spending will be the same as for an equal cash transfer the tobit analysis in this study indicates that for these recipients food stamps have a substantially greater impact on at home food expenditures than an equal amount of cash income these results reject the traditional model several possible explanations of this behavior are discussed

dietary effects of the food stamp program based on data from the 1979 80 survey of food consumption in low income households this paper estimates the effects of changes in cash income and the food stamp benefit on household nutrient availability while controlling for two potential sources of selection bias the major finding of the empirical analysis is that the estimated dietary effects of changes in food stamp benefits are considerably larger than those resulting from changes in cash income with estimates of the ratios of the mpc for the food stamp benefit to the cash income mpc ranging from three to seven across nutrients no significant evidence of selection bias was found and the estimated dietary effects of food stamp benefits from the selection bias models are similar to those from the basic model estimated by ordinary least squares regression

keynesian and new classical models of unemployment revisited several keynesian and new classical models of unemployment for the united states are reevaluated the models are examined for adequacy by testing the cross equation restrictions where appropriate and using diagnostic and nonnested tests that explicitly recognize the problem introduced by generated regressors the best new classical model for the 1946 73 period is found to be adequate when it is estimated over the 1946 85 period whereas the keynesian model is not existing results of tests obtained at the single equation level ignoring generated regressors are not always supported when the test statistics are calculated using the correct covariance matrix or maximum likelihood copyright 1991 by royal economic society

the corporate social performance financial performance link strategic managers are consistently faced with the decision of how to allocate scarce corporate resources in an environment that is placing more and more pressures on them recent scholarship in strategic management suggests that many of these pressures come directly from sources associated with social issues in management rather than traditional arenas of strategic management using a greatly improved source of data on corporate social performance this paper reports the results of a rigorous study of the empirical linkages between financial and social performance corporate social performance csp is found to be positively associated with prior financial performance supporting the theory that slack resource availability and csp are positively related csp is also found to be positively associated with future financial performance supporting the theory that good management and csp are positively related 1997 by john wiley sons ltd