risk sharing and contagion in networks we investigate the socially optimal design of financial networks that allows to tackle the trade off between risk sharing and contagion we identify conditions on the shock distribution under which full integration or maximal segmentation is optimal we also show that under different conditions the optimal network displays different levels of strength of linkages to other firms or intermediate degrees of segmentation in the latter case the individual and social incentives to establish linkages are not necessarily aligned when firms face heterogeneous distributions of risks they should optimally form linkages only with firms facing risks of the same kind

does working from home work evidence from a chinese experiment about 10 of us employees now regularly work from home wfh but there are concerns this can lead to shirking from home we report the results of a wfh experiment at ctrip a 16 000 employee nasdaq listed chinese travel agency call center employees who volunteered to wfh were randomly assigned to work from home or in the office for 9 months home working led to a 13 performance increase of which about 9 was from working more minutes per shift fewer breaks and sick days and 4 from more calls per minute attributed to a quieter working environment home workers also reported improved work satisfaction and experienced less turnover but their promotion rate conditional on performance fell due to the success of the experiment ctrip rolled out the option to wfh to the whole firm and allowed the experimental employees to re select between the home or office interestingly over half of them switched which led to the gains from wfh almost doubling to 22 this highlights the benefits of learning and selection effects when adopting modern management practices like wfh

optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

why do suppliers charge larger buyers lower prices the phenomenon of input suppliers charging larger buyer firms relative to smaller buyer firms lower prices is commonly explained in terms of supplier economies of scale supplier competition for larger buyers and the larger bargaining power of larger buyers this paper provides an alternative explanation and shows that the observed direction of differential pricing can benefit the supplier by lowering the level of tacit collusion its buyers can sustain in their output market this result also provides a new mechanism through which a ban on price discrimination by input suppliers may lower consumer welfare

optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

observability and the payback criterion among the enigmas of corporate finance theory that have received little attention is the puzzling use of the payback method as a capital budgeting tool although the payback method has many drawbacks it is widely used in industry see klammer 1972 fremgren 1973 schall sundem and geijsback 1978 1 gordon 1955 attempted to explain this anomaly by observing that the inverse of the payback period is an approximation for the internal rate of return but as sarnat and levy 1969 point out the accuracy of the approximation depends on the life of the project and its irr for low values of irr the inverse of payback is a very poor approximation moreover it is difficult to believe that corporations that use complex and sophisticated technologies need a rule of thumb to approximate something as simple to compute as the irr in fact empirical evidence shows that most firms compute both the irr and the payback period see schall the payback criterion continues to be widely used in industry although there is little support for it among the academicians this paper attempts to find an economic rationale for it by using an incentive model with asymmetric information it argues that when the managers possess private information regarding projects selected for implementation it is in their interest to choose ceteris paribus projects that pay back faster since manager s wages depend on output because their productivity is unknown by choosing projects that pay back fast they hope to improve their reputations i wish to thank milton harris and an anonymous referee for their helpful suggestions while i retain the responsibility for any remaining errors 1 it has been found that payback is rarely used as a primary capital budgeting method it is used as a secondary criterion to a discounted cash flow method such as npv net present value or irr internal rate of return

innovation outcomes in a distributed organization intrafirm mobility and access to resources prior research has established a relation between intrafirm mobility and innovation outcomes at distributed organizations the literature has also uniformly agreed on the mechanism underlying this relationship the sharing of tacit knowledge and recombination of ideas that occurs because of intrafirm mobility but a second mechanism may also be at work intrafirm mobility might help distant employees secure access to resources for their innovative projects using unique data on travel employment and patenting for 1 315 inventors at the indian research and development r d center of a fortune 50 multinational i find that intrafirm mobility in the form of short duration business trips from a distant r d location to headquarters is positively related to higher subsequent patenting at the individual level i also find mobility immediately prior to meetings at which r d funds are most likely to be disbursed to be related to higher subsequent patenting this study sheds new light on how intrafirm mobility a

the impact of maximum markup regulation on prices markup regulation is a common yet understudied type of regulation we analyze the repeal of maximum wholesale and retail markup regulation in an oligopolistic and vertically non integrated market by comparing the prices of products affected by regulation before and after the policy change and using unregulated products as a control group we find that abolishing regulation led to a significant decrease in both retail and wholesale prices the results provide indirect but consistent evidence that markup ceilings provided a focal point for collusion among wholesalers

the formation of networks with transfers among players we examine the formation of networks among a set of players whose payoffs depend on the structure of the network when players may bargain by promising or demanding transfer payments when forming links we vary three aspects of the game i whether players can only make transfers to and receive transfers from players to whom they are directly linked or whether they can also subsidize links that they are not directly involved in ii whether or not transfers relating to a given link can be made contingent on the full resulting network or only on the link itself and iii whether or not players can pay other players to refrain from forming links we characterize the networks that are supported under these variations and show how each of the above aspects either accounts for a specific type of externality or deals with the combinatorial nature of network payoffs

overinvestment and macroeconomic uncertainty evidence from renewable and non renewable resource firms abstract investment is an inherent component of business activities however what if firms invest more than they should this study examines this phenomenon which is dubbed as overinvestment among resource firms as induced by the business cycle and macroeconomic uncertainties the analysis is conducted using unbalanced panel data drawn from 584 resource companies across 32 countries covering 1986 to 2017 in four resource sectors 1 alternative energy 2 forestry and paper 3 mining and 4 oil and gas producers the results indicate that the forestry and paper sector overinvests relative to the standard investment level predicted by the investment function regardless of the sample period while the alternative energy sector tends to underinvest also many emerging economies including brazil china india indonesia russia and south korea are found to have overinvested over the last three decades or so in addition the results suggest that commodity price inflation plays a more important role in inducing firms overinvestment than commodity price uncertainty it is also found that the home country s business cycle significantly affects overinvestment with the sign alternating from negative to positive after the global financial crisis furthermore the finding also shows no significant relationship between global geopolitical risk and overinvestment but a significantly positive relationship is found between global economic and country level governance policy uncertainties and overinvestment lastly the results suggest that the effect of overinvestment on firm performance after three years is positive especially for firms in the mining sector

myopic corporate behaviour with optimal management incentives existing models in which stock markets lead to corporate short termism rely on an exogenously imposed objective for top managers this paper endogenizes both managers concern for short term stock prices and the resulting distortions we show that when the manager can trade on her own account on the stock market in a way that is observable to market participants but which is not verifiable in court shareholders will choose an incentive contract which induces a bias towards short term returns consistent with recent evidence the short term bias is greater when the optimal contract provides low powered management incentives

countervailing power and price transparency we investigate whether improved transparency about prices may increase the countervailing power exercised by buyers of an intermediate good in a model with an informed manufacturer that sells to both informed and uninformed firms we show that full transparency cannot be part of equilibrium due to the strategic effect of the resulting informational spillover transparency policies introduce a distortion for informed segments and are unsuccessful in completely removing the distortion from the uninformed segment welfare effects are hence ambiguous and depend on the weight assigned to uninformed markets our results thus cast further doubt on the value of transparency

advertising and pricing to deter or accommodate entry when demand is unknown abstract we consider the advertising and pricing strategies of an incumbent firm who is concerned with deterring or accommodating entry and privately informed as to the level of market demand our fundamental result is that a demand exaggerating distortion occurs if the incumbent seeks to signal a low high demand then he behaves as if there were complete information but demand were lower higher than it is pre entry pricing and demand enhancing advertising are therefore distorted downward upward as a consequence of signaling purely dissipative advertising is thus not employed as a signal refinements of sequential equilibrium are featured

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

a needs driven approach to expatriate adjustment and career development a multiple mentoring perspective although effective in improving socialization development and retention in the us domestic context mentoring would likely benefit expatriates and their firms but it remains theoretically underdeveloped in the international context we develop a theory of international mentoring by integrating current perspectives on protean and boundaryless careers with the literature on mentoring and expatriates expatriates need multiple mentors to assist their adjustment and development during the pre departure expatriation and repatriation stages of international assignments we discuss both hierarchical and peer and formal and informal mentoring relationships to delineate which relationships best address specific expatriate needs international mentoring may improve expatriate adjustment development and retention and thus may affect outcomes of international strategy we conclude by discussing implications and avenues for future research

imperfect information and dynamic conjectural variations this article analyzes oligopoly interaction in an environment where firms are imperfectly informed about the evolution of the market demand curve the analysis develops a two period cournot framework under the assumptions that demand shifts are positively serially correlated that firms never directly observe the demand curve and that firms never observe the previous quantity decisions of rivals firms do draw inferences about the position of the demand curve from past observations on prices consequently the current output of a firm will influence the current market price which will then influence rivals inferences about future demand the future output decisions of rivals will respond accordingly the theory predicts negative dynamic conjectural variations essentially a firm perceives that an increase in its output will lower the current market clearing price which will cause rival firms to think that the demand curve has shifted down and hence induce them to lower their outputs in the future

managing the mne subsidiary advancing a multi level and dynamic research agenda abstract multinational enterprise mne subsidiaries abroad are important organizations in their own rights they typically hold some of the mne s most critical resources and operate at the forefront of complex international environments in this review we identify and organize theoretical and empirical research on subsidiary management based on over 600 articles in leading academic journals we develop a conceptual framework that integrates complementary streams of theoretical and empirical research with the subsidiary as its focal unit of analysis in particular we review six lines of research on subsidiary scope practices knowledge management engagement with local market and nonmarket actors performance and individuals within subsidiaries we highlight theoretical perspectives that have contributed to and been advanced by research on mne subsidiaries based on the review we explore future research agendas linking the contemporary research themes with two main thrusts first subsidiary management is a multi level phenomenon that would benefit from more microfoundational research second subsidiary management operates at key interfaces of technology paradigm shifts and of disruptions in the political and institutional environment research into the dynamics of subsidiary management would thus enhance our understanding of international business in a volatile global economy

lowering consumer search costs can lead to higher prices we demonstrate that regulations that lower consumer search costs and make them less heterogeneous across consumers can lead to higher prices charged by firms we estimate the distribution of consumer search costs for 366 isolated retail gasoline markets and find that reducing the mean and standard deviation by 20 and 48 respectively leads to price increases in 32 of markets and an average price increase of 5 2 cents per gallon across all markets thus price transparency regulation that results in higher prices may not stem from collusion but from an equilibrium with less consumer search

information and prices with capacity constraints since george j stigler s 1961 seminal work the literature on consumer search has attempted to understand the relationship between the prices that are set by sell ers and the extent to which consumers can observe and compare these prices before purchasing a good in the theoretical branch of this literature one conclusion is almost universal as buyers become better informed about prices ex ante sellers will set lower prices in equilibrium 1 in fact this relationship is so engrained in the theory of consumer search that it is often accepted as manifest and applied to various markets and situations with little or no hesitation 2 in this paper i examine a completely standard consumer search model with one small yet often relevant additional restriction i assume that sellers possess a limited number of goods or can only serve a limited number of customers at once so that a given seller may be unable to meet realized demand in such an environment i show that the conven tional wisdom regarding information and prices does not necessarily hold having more informed consumers can lead to either an increase or decrease in equilibrium prices or have no effect at all i characterize the regions of the parameter space where each is likely to occur the assumption that a seller s capacity may be fixed and that this constraint may be binding is a fairly important feature of many markets in some markets time is the constraint doctors and barbers and contractors can only serve a limited number of clients at once in other markets space is an issue private schools have a lim ited number of spots in each classroom while restaurants have a limited number of tables perhaps most common is markets in which sellers inventory is occasionally a limiting factor landlords have a limited number of apartments for rent and ticket agents have a limited number of concert tickets available in markets such as these consumers regularly trade off price and availability they are willing to pay more for

strategic commitments for an optimal capacity decision under asymmetric forecast information we study the important problem of how to assure credible forecast information sharing between a supplier and a manufacturer the supplier is responsible for acquiring the necessary capacity before receiving an order from the manufacturer who possesses private forecast information for her end product we address how different contracts affect the supplier s capacity decision and hence the profitability of the supplier and the manufacturer we fully develop two contracts and provide explicit formulae to enable credible forecast information sharing the first is a nonlinear capacity reservation contract under which the manufacturer agrees to pay a fee to reserve capacity the second is an advance purchase contract under which the manufacturer is induced to place a firm order before the supplier secures the component capacity used to build the end product these contracts serve a strategic role in information sharing the capacity reservation contract enables the supplier to detect the manufacturer s private forecast information while the advance purchase contract enables the manufacturer to signal her forecast information we show that channel coordination is possible even under asymmetric forecast information by combining the advance purchase contract with an appropriate payback agreement through our structural and numerical results we also show that the degree of forecast information asymmetry and the risk adjusted profit margin are two important drivers that determine supply chain efficiency and which contract to adopt

the interbank market during a crisis abstract the autumn of 1998 provides a setting in which to test the performance of the interbank market during a potential financial crisis this period witnessed russia s effective default on its sovereign bonds and the near collapse of the hedge fund long term capital management despite these negative shocks to bank capital and increased uncertainty in financial markets the federal funds market still effectively channeled liquidity to those institutions in need at rates consistent with federal reserve intentions further risk premiums on overnight lending were largely unaffected and lending volumes increased suggesting that the federal funds market performed well during this period

discipline and liquidity in the interbank market using 20 years of panel data i demonstrate that high risk banks have consistently paid more than safe banks for interbank loans and have been less likely to use these loans as a source of liquidity the economic importance of this effect was relatively small until the mid 1990s when regulatory and institutional changes began to impose more of the costs of bank failure on uninsured creditors subsequently interbank market price discipline roughly doubled and risk based rationing effects increased by a factor of six in imposing this discipline lenders seem to care most about credit risk at borrowing institutions

the role of consumers in competition and competition policy abstract this paper develops the idea that consumers behaviour matters significantly from the viewpoint of industry performance this is examined through some theoretical propositions on search and switching behaviour but then at greater length through some case study examples these demonstrate how even in potentially competitive industries reluctance by consumers to search or to switch suppliers can lead to sub competitive outcomes comparisons are made between industries where search and switching is easy and those where it is not the significance of non traditional competition policy remedies such as enforcement of annual contracts in changing the outcome is drawn out

government assisted oligopoly coordination a concrete case in 1993 the danish antitrust authority decided to gather and publish firm specific transactions prices for two grades of ready mixed concrete in three regions of denmark following initial publication average prices of reported grades increased by 15 20 percent within one year we investigate whether this was due to a business upturn and or capacity constraints but argue that these seem to have little explanatory power we conclude that a better explanation is that publication of prices allowed firms to reduce the intensity of oligopoly price competition and hence led to increased prices contrary to the aim of the authority

imprecision in accounting measurement can it be value enhancing accounting measurements of firms investments are usually imprecise we study the economic consequences of such imprecision when it interacts with information asymmetry regarding an investment project s ex ante profitability known only by the firm s managers absent agency and risk sharing considerations we find that some degree of accounting imprecision could actually be value enhancing we characterize the optimal degree of imprecision and identify its key determinants the greater the information asymmetry regarding the project s profitability the greater is the imprecision that should be tolerated in the measurement of the firm s investment

collusive equilibrium in the great salt duopoly this paper uses data presented in a report of the monopolies and mergers commission on the market for white salt to test the implications of some recent developments in oligopoly theory the market in question is a homogeneous price setting duopoly where firms are subject to capacity constraints we find that the conclusions of models based on one shot non cooperative games do not hold collusion in the market is readily explained by the types of threat strategies underlying abreu s simple penal codes possible explanations of the collusive equilibrium in terms of joint profit maximization are not supported by the data indeed the explanation of the equilibrium remains an open question copyright 1993 by royal economic society

a real effects perspective to accounting measurement and disclosure implications and insights for future research accounting measurement and disclosure rules have a significant impact on the real decisions that firms make in this essay we provide an analytical framework to illustrate how such real effects arise using this framework we examine three specific measurement issues that remain controversial 1 how does the measurement of investments affect a firm s investment efficiency 2 how does the measurement and disclosure of a firm s derivative transactions affect a firm s choice of intrinsic risk exposures risk management strategy and the incentive to speculate 3 how could marking to market the asset portfolios of financial institutions generate procyclical real effects we draw upon these real effects studies to generate sharper and novel insights that we believe are useful not only for the development of accounting standards but also for guiding future empirical research

location decentralization and knowledge sources for innovation when firms seek to innovate they must decide where to locate their innovation activity this location choice requires firms to make a simultaneous choice about the organizational structure of innovation activity almost by definition multiple locations per firm imply some degree of decentralization we compare predictions of the knowledge based view with the predictions of organizational economics regarding the location and decentralization of r d using firm level data on r d locations in finland we examine the conditions under which firms with multiple r d locations also have greater innovation output our results indicate that multilocation of r d activity is positively associated with imitative innovation output and is strongly correlated with greater external knowledge sourcing we also find that the positive association between multiple r d locations and innovative output does not apply to new to the market innovations the results are consistent with the interpretation that multilocation of r d enables firms to access a broad set of external sources of knowledge in pursuit of imitative rather than new to the market innovation moreover these findings imply heterogeneity in r d strategies between firms pursuing new to the market innovation and firms pursuing imitative innovation it is thus important to distinguish between new to the market and imitative innovations because their determinants may differ

managerial turnover and the theory of short termism abstract this paper presents a novel theory of managerial short termism that is based on managerial turnover the key feature is that if managers rewards are based on current profitability and there is some probability of managerial turnover then rational own reward maximizing managers may choose projects that have intrinsically lower net present values but yield higher returns in the earlier part of their lives this is because managers recognize that the existence of turnover means that there is some probability they won t be around to enjoy the returns generated by long term projects

accounting measurement basis market mispricing and firm investment efficiency in this paper we investigate how the accounting measurement basis affects the capital market pricing of a firm s shares which in turn affects the efficiency of the firm s investment decisions we distinguish two broad bases for accounting measurements input based and output based accounting we argue that the structural difference in the two measurement bases leads to a systematic difference in the efficiency of the investment decisions in particular we show that an output based measure has a natural advantage in aligning investment incentives because of its comprehensiveness the first best investment is achieved when the output based measure is noiseless and manipulation free in addition under an output based measure more accounting noise manipulation always leads to more inefficient investment choices therefore if an output based accounting measure is highly noisy and easy to manipulate in practice the induced investment efficiency can be quite low on the other hand an input based accounting measure while not as comprehensive may induce more efficient investment decisions than an output based measure if some noise is unavoidable in either measure the reason is twofold first input based measures may be associated with less noise and limited manipulation in practice second and more importantly we show that under

networks diversity and productivity the social capital of corporate r d teams we argue that the debate regarding the performance implications of demographic diversity can be usefully reframed in terms of the network variables that reflect distinct forms of social capital scholars who are pessimistic about the performance of diverse teams base their view on the hypothesis that decreased network density the average strength of the relationship among team members lowers a team s capacity for coordination the optimistic view is founded on the hypothesis that teams that are characterized by high network heterogeneity whereby relationships on the team cut across salient demographic boundaries enjoy an enhanced learning capability we test each of these hypotheses directly and thereby avoid the problematic assumption that they contradict one another our analysis of data on the social networks organizational tenure and productivity of 224 corporate r d teams indicates that both network variables help account for team productivity these findings support a recasting of the diversity performance debate in terms of the network processes that are more proximate to outcomes of interest

financial integration and liquidity crises this paper analyzes the effects of financial integration on the stability of the banking system financial integration allows banks in different regions to smooth local liquidity shocks by borrowing and lending on a world interbank market we show under which conditions financial integration induces banks to reduce their liquidity holdings and to shift their portfolios toward more profitable but less liquid investments integration helps reallocate liquidity when different banks are hit by uncorrelated shocks however when a correlated systemic shock hits the total liquid resources in the banking system are lower than in autarky therefore financial integration leads to more stable interbank interest rates in normal times but to larger interest rate spikes in crises these results hold in a setup in which financial integration is welfare improving from an ex ante point of view we also look at the model s implications for financial regulation and show that in a second best world financial integrati

market transparency and market structure the livestock mandatory reporting act of 1999 the premise of the livestock mandatory reporting act of 1999 is that enhanced transparency promotes competition this article provides a theoretical study of the consequences of such transparency for the structure conduct and performance of the livestock industry i conclude that the usefulness of the act to the livestock industry may not be in the value of reported information to feeders as the supporters of the act claim rather by forcing packers to pool information at negligible marginal cost the act may foster more competitive conduct in the procurement of livestock copyright 2003 oxford university press

information externalities share price based incentives and managerial behaviour abstract we survey recent theoretical research on the effects of short term share price based managerial incentive schemes such schemes can induce inefficient managerial behaviour in both hidden action and hidden type contexts these problems arise from informational asymmetries managers take actions to manipulate the information flow rather than to maximize firm value more generally imperfect transmission of information between managers and shareholders or between managers of different firms can lead to similar distortions even when the parties interests are aligned

institutional investors and long term investment evidence from chile developing countries are trying to develop long term financial markets and institutional investors are expected to play a key role this paper uses unique evidence on the universe of institutional investors from the leading case of chile to study to what extent mutual funds pension funds and insurance companies hold and bid for long term instruments and which factors affect their choices the paper uses monthly asset level portfolios to show that despite the expectations mutual and pension funds invest mostly in short term assets relative to insurance companies the significant difference across maturity structures is not driven by the supply side of debt or tactical behavior instead it seems to be explained by manager incentives related to short run monitoring and the liability structure that combined with risk factors tilt portfolios toward short term instruments even when long term investing yields higher returns thus the expansion of large institutional investors does not necessarily imply longer term markets

manufacturer s return policies and retail competition manufacturers returns policies are a common feature in the distribution of many products the obvious rationale for returns policies is insurance practitioners not surprisingly have a different perspective and view returns as a cost of doing business in this paper we study the strategic effect of returns policies on retail competition and highlight its profitability implications for a manufacturer the setting for our research is the distribution of products with uncertain demand limited shelf lives and retail competition our objective is to provide a better understanding of when manufacturers should adopt returns policies the insights are obtained with a model based on the economics of strategy and decision making under uncertainty we show that when retailing is competitive and there is no uncertainty in demand a returns policy subtly induces retailers to compete more intensely the provision of a returns policy reduces retail prices without affecting wholesale prices thereby reducing retailer margins and improving manufacturer profitability the intuition is that with a returns policy cournot like levels of retail stocks cannot be sustained each retailer will order stocks so that it will not be constrained by stocks and so intensifying retail competition when however demand is uncertain and there is a single retailer a returns policy encourages the retailer to over stock and so decreases upstream manufacturer profits while the provision of a returns policy leads to lower retail margins the optimality of returns policy depends on the overall uncertainty and marginal cost a returns policy reduces the dispersion in retail prices between the high and low states of demand and the range of retail prices in the returns case is contained within the range of retail prices for the no returns case in the general setting when there are competing retailers and demand is uncertain there is a trade off for the manufacturer between the benefits more intense retail competition and the costs excessive stocking of a returns policy we find that a manufacturer should accept returns when the marginal production cost is sufficiently low and demand uncertainty is not too great to validate the results of our theory we conduct an empirical test with data from a major u s retailer the tests confirm our prediction that a returns policy intensifies retail competition and reduces retailer margins our theory and empirical test should interest practitioners and researchers in distribution especially those concerned with managing retail competition

learning and protection of proprietary assets in strategic alliances building relational capital one of the main reasons that firms participate in alliances is to learn know how and capabilities from their alliance partners at the same time firms want to protect themselves from the opportunistic behavior of their partner to retain their own core proprietary assets most research has generally viewed the achievement of these objectives as mutually exclusive in contrast we provide empirical evidence using large sample survey data to show that when firms build relational capital in conjunction with an integrative approach to managing conflict they are able to achieve both objectives simultaneously relational capital based on mutual trust and interaction at the individual level between alliance partners creates a basis for learning and know how transfer across the exchange interface at the same time it curbs opportunistic behavior of alliance partners thus preventing the leakage of critical know how between them copyright 2000 john wiley sons ltd

the economics of fraudulent accounting we argue that earnings management and fraudulent accounting have important economic consequences in a model where the costs of earnings management are endogenous we show that in equilibrium low productivity firms hire and invest too much in order to pool with high productivity firms this behavior distorts the allocation of economic resources in the economy we test the predictions of the model using firmlevel data we show that during periods of suspicious accounting firms hire and invest excessively while managers exercise options when the misreporting is detected firms shed labor and capital and productivity improves our firm level results hold both before and after the market crash of 2000 in the aggregate our model provides a novel explanation for periods of jobless and investment less growth

supply chain performance under market valuation an operational approach to restore efficiency based on a supply chain framework we study the stocking decision of a downstream buyer who receives private demand information and has the incentive to influence her capital market valuation we first characterize a market equilibrium under a general single buyback contract we show that the buyer s stocking decision can be distorted in equilibrium such a downstream stocking distortion hurts the buyer firm s own performance and it also influences the performances of the supplier and the supply chain we further reveal scenarios where full supply chain efficiency cannot be reached under any single buyback contract then focusing on contract design we characterize conditions under which a menu of buyback contracts can prevent downstream stocking distortion and restore full efficiency in the supply chain our study demonstrates that in a supply chain context a firm s incentive to undertake real economic activities to influence capital market valuation can potentially be resolved through operational means this paper was accepted by yossi aviv operations management

knowledge seeking and location choice of foreign direct investment in the united states to what extent do firms go abroad to access technology available in other locations this paper examines whether and when state technical capabilities attract foreign investment in manufacturing from 1987 1993 we find that on average state r d intensity does not attract foreign direct investment most investing firms are in lower tech industries and locate in low r d intensity states suggesting little interest in state technical capabilities in contrast we find that firms in research intensive industries are more likely to locate in states with high r d intensity foreign firms in the pharmaceutical industry value state r d intensity the most at a level twice that of firms in the semiconductor industry and four times that of electronics firms interestingly not only firms from technically lagging nations but also some firms from technically leading nations are attracted to r d intensive states this suggests that beyond catching up firms use knowledge seeking investments also to source technical diversity

accounting for banks capital regulation and risk taking this paper examines risk taking incentives in banks under dierent accounting regimes with capital regulation in the model the bank s decisions of capital issuance and investment policy are jointly determined given exogenous minimum capital requirement the bank is more likely to issue equity capital in excess of the minimum required level and implement less risky investment policy under either lower of cost ormarket accounting or fair value accounting than under historical cost accounting but fair value accounting may induce more risk taking compared to lower of cost or market accounting due to short term interest in the part of the bank however the disciplining role of lower of cost or market accounting may discourage bank s incentive to exert project discovery eort

do short term objectives lead to under or overinvestment in long term projects we examine managerial investment decisions in the presence of imperfect information and short term managerial objectives prior research has argued that such an environment induces managers to underinvest in long run projects we show that short term objectives and imperfect information may also lead to overinvestment and we identify how the direction of the distortion depends upon the type of informational imperfection present when investors cannot observe the level of investment in the long run project suboptimal investment will be induced when investors can observe investment but not its productivity however overinvestment will occur there has been in recent years substantial public debate on the question of whether the long run investment decisions of the managers of publicly traded companies may be distorted by market pressures recent work by economists has tried to identify the potential source and nature of such distortions research has naturally focused on situations that are characterized by i short term managerial objectives the managers are concerned not only with the firm s long run stock price but also with the firm s short run stock price due to incentive schemes or the fear of losing control and ii imperfect information the market has less information than the firm s managers about the firm s long run projects the results of this research have indicated that in some situations short term objectives and imperfect information may lead to underinvestment in long run projects this paper seeks to extend prior work on the effects of short term objectives and imperfect information on long run investment decisions we demonstrate that imperfect information together with an emphasis on a firm s short run valuation may lead not only to underinvestment but also to overinvestment in long run projects the direction of the distortion depends

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

market and welfare effects of the u s livestock mandatory reporting act author affiliation kenneth njoroge department of accounting the fuqua school of business duke university box 90120 durham nc 27708 0120 usa kn14 duke eduamalia yiannaka department of agricultural economics 314d filley hall university of nebraska lincoln lincoln ne 68583 0922 usa yiannaka unl edukonstantinos giannakas department of agricultural economics 216 filley hall university of nebraska lincoln lincoln ne 68583 0922 usa kgiannakas unl eduazzeddine m azzam department of agricultural economics 103b filley hall university of nebraska lincoln lincoln ne 68583 0922 usa aazzam1 unl edu corresponding author acknowledgment senior authorship is shared authors names appear in reverse seniority order 1 introductionthe livestock mandatory reporting act the act was enacted in 2001 to provide market participants with information on all cash and noncash transactions reported by packers to the agricultural marketing service ams on a daily basis the information is aggregated under specific confidentiality guidelines1 to preserve the anonymity of the source2 and published in the mandatory livestock and meat market news reports reports 3 ams is responsible for setting the confidentiality guidelines as well as for enforcing the act as stated in the act federal register 2000 the reports intend to provide information that can be readily understood by producers packers and other market participants improve the price and supply reporting services of the department of agriculture and encourage competition in the marketplace for livestock and livestock products the rationale is that as more animals have been purchased under marketing arrangements neither the arrangements nor the final purchase prices are publicly disclosed 4about two years after the act went into effect schroeder grunwald and ward 2002 reviewed the early literature on livestock mandatory reporting lmr a consensus appeared to be forming that while lmr could be beneficial by reducing uncertainty and increasing competition in cattle markets revealing too much information about rival pricing could facilitate collusion and reduce competition among packers schroeder grunwald and ward 2002 p 11 the uncertainty reducing effect of lmr was deduced from two experimental studies by anderson et al 1998 and bastian koontz and menkhaus 2001 in the first experiment price and quantity information in the fed cattle market simulated through the fed cattle market simulator fcms 5 was varied and market outcomes were observed uncertainty measured by price dispersion was found to increase with the amount and type of information withheld in the second experiment also using the fcms market participants were provided with price and quantity information on cattle sold through the spot markets as well as through forward contracts the authors observed a substantial reduction in the variance of forward contract prices the effect of the forward market information on the variance of spot prices was negative but not statistically significant maintaining the hypothesis that mandatory reporting reduces uncertainty through the provision of more information azzam 2003 studied the effects of the reduction in uncertainty on the structure conduct and performance of livestock markets azzam s theoretical findings suggest that in a setting where cattle feeders and packers are risk averse and packers hold consistent conjectures increased transparency due to mandatory reporting promotes competition and results in higher livestock prices however since increased transparency can make it easier for packers to collude wachenheim and devuyst 2001 azzam s assumption of consistent conjectures is restrictive because it rules out the possibility of collusion njoroge 2003 provides a formal model of collusion that is in line with the arguments in wachenheim and devuyst 2001

asset commonality debt maturity and systemic risk we develop a model in which asset commonality and short term debt of banks interact to generate excessive systemic risk banks swap assets to diversify their individual risk two asset structures arise in a clustered structure groups of banks hold common asset portfolios and default together in an unclustered structure defaults are more dispersed portfolio quality of individual banks is opaque but can be inferred by creditors from aggregate signals about bank solvency when bank debt is short term creditors do not roll over in response to adverse signals and all banks are ine ciently liquidated this information contagion is more likely under clustered asset structures in contrast when bank debt is long term welfare is the same under both asset structures

when managers cover their posteriors making the decisions the market wants to see the stock market has opinions as to what choices firms should make we show that concern for current share prices may lead managers to make these choices rather than those suggested by their own superior information even when arbitrarily many privately informed firms have to make a similar decision the market s prejudices may still prevail we compare the distortions that arise from share price maximization with those due to herd behavior among profit maximizing firms and show that the former results in strictly less efficient use of information

experimental evidence of pooling outcomes under information asymmetry operational decisions under information asymmetry can signal a firm s prospects to less informed parties such as investors customers competitors and regulators consequently managers in these settings often face a trade off between making an optimal decision and sending a favorable signal we provide experimental evidence on the choices made by decision makers in such settings equilibrium assumptions that are commonly applied to analyze these situations yield the least cost separating outcome as the unique equilibrium in this equilibrium the more informed party undertakes a costly signal to resolve the information asymmetry that exists we provide evidence however that participants are much more likely to pursue a pooling outcome when such an outcome is available this result is important for research and practice because pooling and separating outcomes can yield dramatically different results and have divergent implications we find evidence that the choice to pool is influenced by changes in t

recruiting for ideas how firms exploit the prior inventions of new hires when firms recruit inventors they acquire not only the use of their skills but also enhanced access to their stock of ideas but do hiring firms actually increase their use of new recruits prior inventions our estimates suggest they do quite significantly in fact by approximately 219 on average however this does not necessarily reflect widespread learning by hiring in fact we estimate that a recruit s exploitation of her own prior ideas accounts for almost half of the above effect with much of the diffusion to others being limited to the recruit s immediate collaborative network furthermore although one might expect the recruit s role to diminish rapidly as her tacit knowledge diffuses across her new firm our estimates indicate that her importance is surprisingly persistent over time we base these findings on an empirical strategy that exploits the variation over time in hiring firms citations to the recruits premove patents specifically we employ a difference in differences approach to compare premove versus postmove citation rates for the recruits prior patents and corresponding matched pair control patents our methodology has three benefits compared to previous studies that also examine the link between labor mobility and knowledge flow 1 it does not suffer from the upward bias inherent in the conventional cross sectional comparison 2 it generates results that are robust to a more stringently matched control sample and 3 it enables a temporal examination of knowledge flow patterns this paper was accepted by kamalini ramdas entrepreneurship and innovation

cartel overcharges an empirical analysis abstract using 406 overcharge estimates the study analyzes the impact of cartel characteristics and the market environment on the magnitude of overcharges attained by cartels in different geographic markets and during six antitrust law regimes starting from the 18th century the median overcharge achieved by cartels is 20 percent of selling price as predicted by cartel theory market structure is an important determinant of the overcharge level markets where cartels have high market shares tend to have higher overcharges the number of cartel participants and the size inequality among them are inversely related to the overcharge level international cartels impose higher overcharges than domestic cartels overcharges attained in the us and european markets tend to be lower than overcharges achieved in the asian markets and the rest of the world results on the impact of changes in the antitrust law environment over time on the size of cartel overcharges are mixed however there is some evidence indicating that the lowest overcharges are associated with the latest antitrust law period

liquidity coinsurance moral hazard and financial contagion we study the propagation of financial crises between regions characterized by moral hazard problems the source of the problem is that banks are protected by limited liability and may engage in excessive risk taking the regions are affected by negatively correlated liquidity shocks so that liquidity coinsurance is pareto improving the moral hazard problem can be solved if banks are sufficiently capitalized under autarky a limited investment is needed to achieve optimality so that a limited amount of capital is sufficient to prevent risk taking with interbank deposits the optimal investment increases and capital becomes insufficient to prevent excessive risk taking thus bankruptcy occurs with positive probability and the crises spread to other regions via the financial linkages opening the financial markets is nevertheless pareto improving consumers benefit from liquidity coinsurance although they pay the cost of excessive risk taking finally we show that in this framework a completely connected deposit structure is more conducive to financial crises than an incompletely connected structure

on the effects of suggested prices in gasoline markets textabstractthis article analyzes the role of suggested prices in the dutch retail market for gasoline suggested prices are announced by large oil companies with the suggestion that retailers follow them there are at least two competing rationales for the existence of suggested prices they may either help retailers translate changes in international gasoline spot market prices into retail prices or they may coordinate retail prices we show that there is next to the international spot market prices additional information in suggested prices that explains retail prices therefore we conclude that suggested prices help to coordinate retail prices

banks as monitors of other banks evidence from the overnight federal funds market this study provides evidence that banks are effective monitors of their peers by showing that the interest rate paid on federal funds transactions reflects differences in credit risk across borrowers in addition the size and relative importance in the funds market of the trading institutions are shown to affect the rates charged for overnight borrowing thereby providing insight into the nature of competition in the federal funds market transaction volume and size of transaction effects are uncovered as is evidence of relationship banking between banks these results are made possible by unique data identifying individual federal funds transactions copyright 2001 by university of chicago press

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

in efficient interbank networks we study the efficiency properties of the formation of an interbank network banks face a trade off by establishing connections in the interbank market on the one hand banks improve the diversification of their liquidity risk and therefore can obtain a higher expected payoff on the other hand banks not sufficiently capitalized have risk shifting incentives that expose them to the risk of bankruptcy connecting to such risky banks negatively affects expected payoff we show that both the optimal and the decentralized networks are characterized by a core periphery structure the core is made of the safe banks whereas the periphery is populated by the risky banks nevertheless the two network structures coincide only if counterparty risk is sufficiently low otherwise the decentralized network is underconnected as compared to the optimal one finally we analyze mechanisms that can avoid the formation of inefficient interbank networks

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

dynamic supplier contracts under asymmetric inventory information in this paper we examine a supply chain in which a single supplier sells to a downstream retailer we consider a multiperiod model with the following sequence of events in period t the supplier offers a contract to the retailer and the retailer makes her purchasing decision in anticipation of the random demand the demand then unravels and the retailer carries over any excess inventory to the next period unmet demand is lost in period t 1 the supplier designs a new contract based on his belief of the retailer s inventory and the game is played dynamically we assume that short term contracts are used i e the contracting is dynamically conducted at the beginning of each period we also assume that the retailer s inventory before ordering is not observed by the supplier this setting describes scenarios in which the downstream retailer does not share inventory sales information with the supplier for instance it captures the phenomenon of retailers distorting past sales information to secure better contracting terms from their suppliers we cast our problem as a dynamic adverse selection problem and show that given relatively high production and holding costs the optimal contract can take the form of a batch order contract which minimizes the retailer s information advantage we then analyze the performance of this type of contract with respect to some useful benchmarks and quantify the value of prudent contract design and the value of inventory information to the supply chain markovian adverse selection models in which the state and action in a period affect the state in the subsequent period are recognized as theoretically challenging and are relatively less understood we take a nontrivial step towards a better understanding of such models under short term contracting

crises and capital requirements in banking we analyze a general equilibrium model in which there is both adverse selection of and moral hazard by banks the regulator can screen banks prior to giving them a licence audit them ex post to learn the success probability of their projects and impose capital adequacy requirements capital requirements combat moral hazard when the regulator has a strong screening reputation and they otherwise substitute for screening ability crises of confidence can occur only in the latter case and contrary to conventional wisdom the appropriate policy response may be to tighten capital requirements to improve the quality of surviving banks

financial networks and contagion we study cascades of failures in a network of interdependent financial organizations how discontinuous changes in asset values e g defaults and shutdowns trigger further failures and how this depends on network structure integration greater dependence on counterparties and diversification more counterparties per organization have different nonmonotonic effects on the extent of cascades diversification connects the network initially permitting cascades to travel but as it increases further organizations are better insured against one another s failures integration also faces trade offs increased dependence on other organizations versus less sensitivity to own investments finally we illustrate the model with data on european debt cross holdings jel d85 f15 f34 f36 f65 g15 g32 g33 g38 globalization brings with it increased financial interdependencies among many kinds of organizations governments central banks investment banks firms etc that hold each other s shares debts and other obligations such interdependencies can lead to cascading defaults and failures which are often avoided through massive bailouts of institutions deemed too big to fail recent examples include the us government s interventions in aig fannie mae freddie mac and general motors and the european commission s interventions in greece and spain although such bailouts circumvent the widespread failures that were more prevalent in the nineteenth and early twentieth centuries they emphasize the need to study the risks created by a network of interdependencies understanding these risks is crucial to designing incentives and regulatory responses which defuse cascades before they are imminent in this paper we develop a general model that produces new insights regarding financial contagions and cascades of failures among organizations linked through a network of financial interdependencies organizations values depend on each other e g through cross holdings of shares debt or other liabilities if an

a signal jamming theory of predation we propose a new theory ofpredation based on signal jamming in our model the predator s characteristics are common knowledge while the entrant is uncertain of his own future profitability the entrant uses his current profit to decide whether to remain in the market and the predator preys to jam or interfere with this inference problem thus our model differs from those based on reputation effects in which the predator preys to signal information about himself

note the role of returns policies in pricing and inventory decisions for catalogue goods manufacturers often use returns policies to encourage retailers to stock and price items more aggressively we focus on the effect that such policies have on both a retailer s and a manufacturer s profits when the retailer must commit prior to the selling season to both a stocking quantity and a price at which to sell an item such a commitment is often necessary for retailers who sell primarily through catalogues

financial networks contagion commitment and private sector bailouts i develop a model of financial networks in which linkages not only spread contagion but also induce private sector bailouts where liquid banks bail out illiquid banks because of the threat of contagion introducing this bailout possibility i show that linkages may be optimal ex ante because they allow banks to obtain some mutual insurance even though formal commitments are impossible however in some cases e g when liquidity is concentrated among a small group of banks the whole network may collapse i also characterize the optimal network size and apply the results to joint liability arrangements and payment systems linkages among agents in financial markets are a concern because of the risk of financial contagion that is the risk that a small shock to one agent will spread to other agents in a domino effect whether we should worry about these linkages is an open question the main goal of this paper is to show that a network in which agents are closely interlinked may be optimal both because of and despite the potential for contagion another goal is to characterize optimal networks that is whether and how agents should be linked to one another the basic intuition is as follows linkages present the threat of contagion to prevent collapse of the whole network agents who are lucky ex post may be willing to bail out those who are not in this way agents obtain the benefits of mutual insurance even though they cannot precommit to making payments

is it whom you know or what you know an empirical assessment of the lobbying process abstract do lobbyists provide issue specific information to members of congress or do they provide special interests access to politicians we present evidence to assess the role of issue expertis

optimal price skimming by a monopolist facing rational consumers this paper considers the intertemporal pricing problem for a monopolist marketing a new product the key feature differentiating this paper from the extant management science literature on intertemporal pricing is the assumption that consumers are intertemporal utility maximizers a subgame perfect nash equilibrium pricing policy is characterized and shown to involve intertemporal price discrimination we compare this policy to the optimal policy for a monopolist facing myopic consumers and find that for any given state prices are always lower with rational consumers than with myopic consumers for plausible parameter values the assumption of consumer rationality can be shown to lead to large differences in optimal prices moreover if a monopolist facing rational consumers implements the optimal myopic consumer pricing policy profits can be significantly less than if the monopolist follows the equilibrium pricing policy for rational consumers

markets ready mixed concrete concrete s natural color is gray its favored uses are utilitarian its very ubiquity causes it to blend into the background but ready mix concrete does have one remarkable characteristic other than manufactured ice perhaps no other manufacturing industry faces greater transport barriers the transportation problem arises because ready mix concrete both has a low value to weight ratio and is highly perishable it absolutely must be discharged from the truck before it hardens these transportation barriers mean ready mixed concrete must be produced near its customers for the same reason foreign trade in ready mixed concrete is essentially nonexistent this article is an introduction to the basics of the market for ready mix concrete focusing mainly on its consumers and its producers in the united states but with occasional comparisons to other countries when contrasts are useful

shark repellents and managerial myopia an empirical test since the proxy fights of the 1950s commentators have debated the welfare implications of corporate takeovers although observers such as manne 1965 jensen and meckling 1976 fama 1980 and jensen and ruback 1983 argue that the market for corporate control promotes efficiency and enhances wealth some critics such as managers of firms subject to hostile takeover attempts contend that takeovers destroy firm value the critics frequently assert that takeover pressure forces managers to sacrifice profitable but slowyielding long term investments in favor of less productive short term investments that offer immediate returns while the evidence supporting takeover induced shortsightedness is largely anecdotal a recent paper by stein 1988 develops a formal

why hang on to losers divestitures and takeovers we study the divestiture decisions of managers who care about their reputations managers divestiture and investment decisions are publicly observable but managers privately observe signals with respect to the future payoff distribution of investments they have initiated we establish that in equilibrium there is too little divestiture these inefficiencies create the opportunity for wealth enhancing divestiture motivated takeovers a key result is that only managers of targets with middle of the road asset specificity should consider the takeover threat credible these findings suggest that uniqueness of assets is an important determinant of both agency costs and takeover activity our analysis leads to several empirical predictions overwhelming empirical evidence has documented large gains in shareholder wealth that arise from takeovers jarrell brickley and netter 1988 and jensen and ruback 1983 the source of these gains has remained elusive however although takeovers are followed by some infusion of new managerial talent we have not witnessed the kind of profound post takeover restructuring of the productive activities of target firms that would readily justify the documented wealth gains a commonly observed post takeover initiative is divestiture of some of the target s lines of business bhide 1989 and bhagat shleifer and vishny 1990 what is puzzling is that if the gains from takeovers stem from the anticipation of such divestitures then why were these divestitures not undertaken by the target firm s management in the first place the purpose of this paper is to provide a possible answer to this question our focus is on the divergence in incentives between managers and shareholders with respect to divestitures of ongoing projects we show that managers might rationally decide to hang on to projects that should be divested in

the formation of a core periphery structure in heterogeneous financial networks recent empirical evidence suggests that nancial networks exhibit a core periphery network structure this paper aims at giving an economic explanation for the emergence of such a structure using network formation theory focusing on intermediation benets we nd that a core periphery network cannot be unilaterally stable when agents are homogeneous the best response dynamics converge to a unique unilaterally stable outcome ranging from an empty to denser networks as the costs of linking decrease a core periphery network structure can form endogenously however if we allow for heterogeneity among agents in size we show that our model can reproduce the observed core periphery structure in the dutch interbank market for reasonable parameter values

the formation of financial networks modern banking systems are highly interconnected despite various benefits linkages between banks carry the risk of contagion in this article i investigate whether banks can commit ex ante to mutually insure each other when there is contagion risk in the financial system i model banks decisions to share this risk through bilateral agreements a financial network that allows losses to be shared among various counterparties arises endogenously i characterize the probability of systemic risk defined as the event that contagion occurs conditional on one bank failing in equilibrium interbank networks i show that there exist equilibria in which contagion does not occur

a behavioral understanding of investment horizon and firm performance observers have argued that firms overly emphasize short term results at the expense of long run value using a behavioral perspective we analyze three hypotheses related to this general argument first we examine the association of investment time horizons with firm performance contributing new theory that argues for a quadratic rather than linear association second because the tendency toward immediate results could reflect stock market pressures we consider how the interaction of investor patience and firm horizon relates to firm performance third we examine the argument s implication that most firms have investment horizons at a level where marginal increases in horizon associate positively with firm performance measuring horizon as the expected useful lives of capital expenditures we find empirical support for the hypothesized quadratic relation in a large scale multiyear sample of u s publicly held manufacturing firms and confirm that a majority of firms have horizons in the region where our models predict increases in horizon positively influence performance we also find that the most positive returns occur when long horizon investments are aligned with investor patience

monopolist pricing with dynamic demand and production cost this paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream the interdependency of cost and demand on cumulative production makes the problem inherently dynamic cost is assumed to be declining with cumulative production learning curve effect while demand is a function of price and cumulative sales representing word of mouth and saturation effects the paper addresses this problem in a general framework that includes several previous results as special cases and provides new insights in other situations while the learning curve and word of mouth effect cause prices to be lower than the price that maximizes immediate revenues the saturation factor has the opposite effect the price path over time is affected by these factors and the interest rate we characterize the price path under several different situations and interpret the results for policy guidelines