rationing by waiting and the value of time results from a natural experiment the authors analyze data from a natural experiment with rationing by waiting in the situation motorists were confronted with a choice between waiting in line for low priced gasoline or purchasing at a higher price without waiting they view this as a revealed preference experiment and use their choices to estimate the value of time spent waiting as a function of individual characteristics in most cases the estimates of the value of time are quite similar to individuals after tax wages 13 references 7 tables

food preferences and nutrition in rural bangladesh t he dietary choice of households near subsistence levels of nutrient intake is one of obvious policy importance in many countries such as bangladesh national goals are set in terms of nutritional intake and there is heavy intervention in the markets for foods however little is known about the manner in which food preferences vary with food expenditure and nutrient intake the design of efficient programs to aid nutritionally deficient households in attaining minimal levels of nutrient intake requires information on all ownand cross price elasticities for both target and non target groups the net effect of a food price subsidy on the consumption of food nutrients cannot be predicted without knowledge of the complete elasticity matrix results presented below demonstrate that substitution effects can be so strong that the subsidization of certain foods quite often reduces nutrient consumption in this study demand equations for nine foods which allow for extremely flexible consumer price response are estimated from the individual budgets of 5 750 rural bangladeshi households estimation at the household level is preferred because it more readily permits the incorporation of household composition variables into the demand analysis such as household size occupation and employment status that are typically lost in aggregation there is also a greater range and variation in expenditure levels than found in grouped data this is of particular importance in the study of nutritional well being as it is the poorest households which are of special interest moreover the household sample provides sufficient degrees of freedom to estimate a simple varying parameter model which requires the estimation of 270 parameters previous econometric analysis of income class specific dietary choice has been limited and not altogether satisfactory pinstrup anderson de londono and hoover 1976 estimated complete sets of price elasticities for different income strata using frisch s scheme in order to study the impact of changes in relative prices on nutrient consumption their results are suspect because of the assumption of want independence necessary for this methodology to be valid alderman and timmer 1980 who were also concerned with studying the relationship between food price policy and nutrient intake by income classes econometrically estimated separate price coefficients for each income group by including slope dummy variables in their demand equations for rice and cassava in indonesia the inclusion of these dummy variables revealed surprisingly large differences in compensated price response across income groups although their results support the notion that poorer households respond differently to prices than the rich the limitations of their data constrained them to consider only two foods and to specify changes in price response which are discontinuous with respect to income i the formulation and estimation of the food demand equations is discussed in section ii below section iii presents the results of the estimation and discusses the nutritional implications of movements in relative food prices and other exogenous variables section iv summarizes our findings

fairness self interest and the politics of the progressive income tax all advanced democracies have adopted income taxes with considerable progression in marginal tax rates to explain this we examine the nature of individual and collective preferences over alternative tax schedules in the context of a simple two sector model we first consider the case of altruistic or sociotropic citizens who view the income tax as a means of achieving a fairer or more egalitarian distribution of income we show that greater marginal rate progressivity may well be less fair that a fairest tax however defined is always a linear or flat rate schedule in which all incomes are taxed at the same marginal rate and that with a purely sociotropic electorate there exists a flat rate schedule which is a majority equilibrium we then show that with self interested voters who seek to minimize their own tax burdens greater marginal rate progression may well be preferred by middle and upper income voters that for middle income citizens the optimal schedule is a sharply progressive one and that within the set of individually optimal schedules there exists a majority equilibrium which is a progressive schedule which minimizes the burden on median income or middle class citizens at the expense of lower and upper income taxpayers

drexel burnham lambert s bankruptcy and the subsequent decline in underwriter fees abstract in the 1980s drexel burnham lambert dominated the underwriting of junk bonds with close to a 50 market share in 1990 drexel went bankrupt and was liquidated and the percentage underwriting fees for junk bonds subsequently dropped dramatically we present strong evidence that the exit of drexel burnham lambert and the resulting increase in competition for market share were major contributing factors to the decline in junk bond underwriter fees

predicting the effects of in kind transfers on labor supply few empirical questions in economics have received the degree of attention that has been directed at measuring the impact of income transfers on work incentives the labor market effects of cash assistance have been carefully examined by numerous investigators while in kind programs have received relatively scant treatment despite that over the past twenty years the composition of federal antipoverty expenditures has dramatically shifted in favor of in kind aid two arguments are frequently offered in support of this change in approach to combatting poverty the first expresses concern over the competence of the poor to make wise decisions regarding their own consumption activity restricted transfers are a means of helping the poor while ensuring that the assistance is used in accordance with society s views on what will best improve the lot of recipients the second argument is that in kind transfers are less attractive to the poor than unrestricted cash grants and as such offer greater incentives for the poor to work and leave the welfare rolls this is a question for which little direct evidence exists given the absence of explicit studies to draw upon it has been natural to consider the disincentive effects of in kind transfer programs within conventional models by treating the transfers as if they had taken the form of cash this is a valid approach only if these programs induce the same consumption patterns as do money transfers existing evidence indicates that this is often not so a sizeable literature has evolved concerning recipient valuation of in kind assistance studies that entail computation of cash equivalent values for food stamps 6 7 18 20 22 24 public housing 7 8 15 and medicaid 20 24 provide evidence that these transfers are frequently valued well below market cost this indicates that many current and prospective recipients of in kind assistance are by the nature of the programs forced to consume a different mix of commodities and leisure than they would have had they received cash in terms of economic theory this means that the appropriate model should incorporate quantity constrained commodity demand and labor

the price concentration relationship in banking the commonly observed positive correlation between market concentration and profitability may be explained by noncompetitive pricing behavior as argued by the structure performance hypothesis or by the greater efficiency of firms with dominant market shares as argued by the efficient structure hypothesis by examining the price concentration relationship instead of the profit concentration relationship this paper tests the structure performance hypothesis in a manner that excludes the efficient structure hypothesis as an alternative explanation of the results the results strongly support the structure performance hypothesis and are robust with respect to model specification measurement of concentration and econometric technique copyright 1989 by mit press

budgetary units a weberian approach to consumption1 established consumption theory relies heavily on application of individualistic frames and market models of behavior a framework built around consumption oriented groups would facilitate progress toward a more general theory of consumption this article reintroduces and extends weber s budgetary unit concept to address this gap correcting key problems dogging the consumption literature the budgetary unit concept 1 offers a new framework for theorizing and better accounting for observed consumption patterns 2 reveals how consumption units have organizational logics preferences strengths and vulnerabilities that are consequentially distinct from market logic of production and profit and 3 focuses attention on social processes and features enabling theorization of general social patterns of consumption across diverse contexts this article highlights the explanatory power and broad applicability of weber s budgetary unit approach using the conventionally dissimilar cases of russian organized

efficient selection of insured currency positions protective puts vs fiduciary calls we examine the empirical results from implementation of portfolio insurance strategies employing currency spot and futures options hypotheses are generated from ogden and tucker s 1988 generalizations concerning the relative values of american spot currency options and currency futures options we find that protective puts using futures options are generally dominated by both protective puts that use options on spot currencies and by fiduciary calls on futures contracts this suggests that the prices of puts on foreign currency futures contracts are too high relative to foreign currency futures calls and to puts on spot currencies

transfers in cash and in kind theory meets the data we review theoretical explanations for in kind transfers in light of the limited empirical evidence after reviewing the traditional paternalistic arguments we consider explanations based on imperfect information and self targeting we then discuss the large literature on in kind programs as a way of improving the efficiency of the tax system and a range of other possible explanations including the samaritan s dilemma pecuniary effects credit constraints asymmetric information amongst agents and political economy considerations our reading of the evidence suggests that paternalism and interdependent preferences are leading overall explanations for the existence of in kind transfer programs but that some of the other arguments may apply to specific cases political economy considerations must also be part of the story

how are derivatives used evidence from the mutual fund industry we investigate investment managers use of derivatives by comparing return distributions for equity mutual funds that use and do not use derivatives in contrast to public perception derivative users have risk exposure and return performance that are similar to nonusers we also analyze changes in fund risk in response to prior fund performance changes in risk are substantially less severe for funds using derivatives consistent with the explanation that managers use derivatives to reduce the impact of performance on risk we provide new evidence regarding the implications of cash flows and managerial gaming for the relation between performance and risk

the price effects of cash versus in kind transfers this article examines the effect of cash versus in kind transfers on local prices both types of transfers increase the demand for normal goods in kind transfers also increase supply in recipient communities which could lead to lower prices than under cash transfers we test and confirm this prediction using a programme in mexico that randomly assigned villages to receive boxes of food trucked into the village equivalently valued cash transfers or no transfers we find that prices are significantly lower under in kind transfers compared to cash transfers relative to the control group in kind transfers cause a 4 fall in prices while cash transfers cause a positive but negligible increase in prices in the more economically developed villages in the sample households purchasing power is only modestly affected by these price effects in the less developed villages the price effects are much larger in magnitude which we show is due to these villages being less tied to the outside economy and having less competition among local suppliers

bank commercial loan markets and the role of market structure evidence from surveys of commercial lending abstract this paper seeks to test two tenets that underlie the current practice of antitrust analysis in banking the first is the view that bank commercial loan markets are local in nature and the second is the view that banks in more concentrated markets are more likely to engage in some form of noncompetitive behavior tests of both of these tenets are conducted using an extensive set of loan specific survey information not previously employed to address these issues results consistent with the existence of local banking markets and the dominance of competitive differences as an explanation for observed differences in loan rates are found

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

shortfall as a risk measure properties optimization and applications motivated from second order stochastic dominance we introduce a risk measure that we call shortfall we examine shortfall s properties and discuss its relation to such commonly used risk measures as standard deviation var lower partial moments and coherent risk measures we show that the mean shortfall optimization problem unlike mean var can be solved e7ciently as a convex optimization problem while the sample mean shortfall portfolio optimization problem can be solved very e7ciently as a linear optimization problem we provide empirical evidence a in asset allocation and b in a problem of tracking an index using only a limited number of assets that the mean shortfall approach might have advantages over mean variance 2003 elsevier b v all rights reserved

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

structure induced equilibria and perfect foresight expectations this paper extends the work on structure induced equilibria by explicitly considering voters expectations the standard assumption of myopic expectations is contrasted with the alternative assumption of perfect foresight expectations in the institutional setting examined perfect foresight means voters know how the outcome on the first issue in a sequence of two issues conditions majority rule outcomes on the second issue if voters act on this knowledge when voting on the first issue then several important results follow first voters may possess multipeaked preferences defined over the first issue with a majority cycle resulting so that there is no equilibrium to the whole sequence of elections second even if cycling does not result the exact location of the equilibrium involves a broader conspiracy than previously thought a conspiracy of not only preferences and institutional structure but also voters expectations as conditioned by that structure

foreign entry into underwriting services evidence from japan s big bang deregulation we examined the effect of foreign entry into bond market underwriting activity using issue level data from the japanese samurai and euro yen bond markets we found that the fees charged by japanese underwriters were higher on average than those of foreign underwriters but the difference could be explained by conditioning on issue characteristics our results also suggest that bond issuers sorted properly across underwriters as switching across underwriter nationalities would be expected to result in higher fees however the savings enjoyed by firms issuing with foreign underwriters were modest and statistically insignificant while those of firms issuing with japanese underwriters were substantial and statistically significant this result suggests that japanese underwriters priced their services aggressively over the sample period perhaps in an effort to retain or gain market share this conjecture is supported by a matching exercise that examined the liberalization of foreign underwriter access to the samurai bond market using euro yen bond issues as a control foreign entry led to a statistically and economically significant decrease of 16 basis points on average in underwriting fees in the samurai bond market overall our results suggest that the international market for japanese bond underwriting services was partially segmented by nationality as issuers appear to have preferred habitats but that liberalization increased overall market competition

dynamic pricing through discounts for optimizing multiple class demand fulfillment in a multiple customer class model of demand fulfillment for a single item we consider the use of dynamic price discounts to encourage backlogging of demand for customer classes denied immediate service customers are assumed to arrive over several stages in a period and customer classes are distinguished by their contractual price and sensitivity to discounts through dynamic programming we determine the optimal discounts to offer assuming a linear model for the sensitivity of customers to such inducements we show that customers are served in class order and allocation of inventory to demand is determined by considering the current number of customers backlogged as well as the current inventory position through comparison to a naive supplier allocating inventory first come first served with no discounting we show that profits are primarily influenced by the allocation of capacity and the use of price discounts primarily benefits the second class customers overall fill rate heuristics for implementation of the solution in real time settings are given

the welfare cost of free public schools the welfare cost of free public schools is the difference between the cost of those schools and the maximum parents would be willing to pay to send their children to those schools estimates based on data from california school districts in 1970 indicate that this welfare cost is substantial mostly because private schools are cheaper per unit of quality than public schools

allocation of goods through non price mechanisms evidence on distribution by willingness to wait abstract this paper discusses a model of market clearing when prices are rigid the estimated model is one in which the waiting time necessary to obtain the scarce goods brings the excess demand in line with current supply in a manner of a flexible price the mechanism of such a market has been discussed by barzel and by nichols smolensky and tideman but little empirical evidence has been reported estimation of consumer demand in such a market is presented here heckman s approach to truncated sample estimation has been employed the approach allows modelling of time costs as a two part tariff the results confirm that consumer s response to waiting time is measurable and in the same order of magnitude as expected from response to changes in prices the study also indicates that rationing by willingness to wait does not necessarily distribute goods to the poor

on the coverage of public employment schemes for poverty alleviation abstract the cost effectiveness of public employment as a means of poverty alleviation depends on policy design choices concerning coverage and wage rates the choice is between schemes which aim for wide coverage at potentially low wages and schemes which ration participation so that more beneficiaries can escape poverty conditions are derived for ranking stylized policy alternatives in terms of a broad class of poverty measures the preferred policy is shown to depend on the budget level administrative cost the initial wage distribution and the policy maker s aversion to poverty empirical simulations for bangladesh data generally support wide coverage for distributionally sensitivity poverty measures but limited coverage for other measures

an efficiency and welfare classification of rationing by waiting in the presence of bribery abstract governments often allocate commodities at low prices and on a first come first served basis rationing by waiting while bureaucrats who distribute the commodities usually take bribes a model is developed to classify the efficiency implications of bribery and socially optimal pricing schemes in rationing by waiting if the rationed good and individual income spent on other goods other income are complements then bribery may enhance allocative efficiency and a dual pricing scheme can augment social welfare however if the rationed commodity and other income are substitutes then bribery may not improve allocative efficiency and distributing the rationed commodity free is socially optimal

investment bank reputation and the price and quality of underwriting services the relation between investment bank reputation and the price and quality of bond underwriting services is studied here after controlling for endogeneity in issuerunderwriter matching i find that reputable banks obtain lower yields and charge higher fees but issuers net proceeds are higher these relations are pronounced in the junk bond category in which reputable banks underwriting criteria are most stringent these findings suggest that banks underwriting decisions reflect reputation concerns and are thus informative of issue quality they also suggest that economic rents are earned on reputation and thereby provide continued incentives for underwriters to maintain reputation in capital markets investment banks play the important role of bridging firms that need capital with investors that seek investment opportunities intermediation services are valuable first because the banks specialization in the sales and marketing of securities helps lower the issuers transactional costs of borrowing but perhaps more importantly investment banks can provide value through their role in lowering the issuers informational cost of capital this role arises from the information asymmetry that typically exists between insiders the issuing firms and outsiders the investors in security issuance events such an information gap as akerlof demonstrated in his classic 1970 paper at best causes investors to discount the securities and at worst can threaten the existence of the market investment banks standing between the insiders and the outsiders seem to be in the perfect position to reduce information asymmetry and lower the cost of capital that issuers would otherwise have to pay but how does an investment bank solve its own information problem visa vis the investor one solution is the reputation capital at stake for the intermediary a key difference between investment banks and ordinary issuers lily hua fang is from finance area insead this paper is based on a chapter of my dissertation i am indebted to my advisors gary gorton robert holthausen andrew metrick david musto and ayako yasuda for their guidance and support i owe special thanks to an anonymous referee whose insightful comments helped me improve the paper greatly i also want to thank franklin allen john core petra todd jay ritter and robert stambaugh the editor for valuable feedback comments and suggestions from seminar participants at boston college insead

original issue high yield bonds aging analyses of defaults exchanges and calls this paper presents an aging analysis of 741 high yield bonds and finds default exchange and call percentages substantially higher than reported in earlier studies by december 31 1988 cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue years 1979 1983 and from 3 to 9 percent for issue years 1984 1986 exchanges are also a significant factor although they often are followed by default moreover a significant percentage of high yield debt 26 47 percent for 1977 1982 has been called by december 31 1988 approximately one third of the bonds issued in 1977 1982 has defaulted or been exchanged and an additional one third had been called on average only 28 percent of these issues are still outstanding there is no evidence that early results for more recent issue years differ markedly from issue years 1977 to 1982

sequential voting with endogenous voter forecasts we investigate a sequential voting model in which voters forecasts of outcomes on future issues are determined endogenously voters are assumed to make decisions in an environment in which future outcomes are uncertain the uncertainty arises from two possible sources voters may be uncertain of other voters preferences in addition events that occur before future issues are decided may affect voters preferences on future votes information available to voters at each point in time is characterized an equilibrium to the voting problem if one exists is one for which the outcome on the issue currently being decided and voters forecasts of outcomes on future issues are determined simultaneously we show that an equilibrium exists under a particular voting institution and characterize voters forecasts for this equilibrium

in search of welfare improving gifts gift giving is thought to decrease welfare recipients are sometimes stuck with gifts they would not have purchased because the giver does not perfectly know the recipient s preferences and in kind gifts cannot be costlessly refunded such gifts are welfare reducing compared to giving cash if in addition recipients possess full information as to which stores carry their desired goods and the ability to reach these stores costlessly we replace these two latter assumptions with the more realistic assumptions of uncertainty about the location of goods and search costs in contrast to existing economic models gifts in our model enhance expected welfare moreover gift giving cannot be replaced by a profit maximizing trader nor the introduction of nearby specialty stores carrying gift goods we use our model to explain a number of stylized facts about gift giving the organization of retail trade and in kind government transfers 2008 elsevier b v all rights reserved

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

the benefits of in kind government programs abstract in this paper i present a methodology to calculate the benefits of in kind programs such as public housing which restrict consumption of some goods to the levels offered by the government most previous studies begin with an a priori specification of the direct utility function i begin with the ordinary demand function and then integrate demand to recover the indirect utility function and the expenditure function i argue that this approach gives additional flexibility in choosing a functional form which best describes the data i then use this methodology to estimate the benefits of the u s government s section 8 housing program

understanding index option returns this paper studies the returns from investing in index options previous research documents significant average option returns large capm alphas and high sharpe ratios and concludes that put options are mispriced we propose an alternative approach to evaluate the significance of option returns and obtain different conclusions instead of using these statistical metrics we compare historical option returns to those generated by commonly used option pricing models we find that the most puzzling finding in the existing literature the large returns to writing out of themoney puts is not even inconsistent with the black scholes model moreover simple stochastic volatility models with no risk premia generate put returns across all strikes that are not inconsistent with the observed data at the money straddle returns are more challenging to understand and we find that these returns are not inconsistent with explanations such as jump risk premia peso problems and estimation risk

the returns and risk of alternative put option portfolio investment strategies this paper is the second in a series of analyses we have prepared based on simulations of a variety of portfolio strategies over a significant period of time the first of these analyses examined the fully covered call option writing strategy and the buying strategy which combines purchase of call options and commercial paper in the study presented here we examine the uncovered put writing strategy and the buying strategy which combines the purchase of put options and the underlying stocks as a preface to the simulations we analyze the quantitative discrepancies between the parity model of put pricing and a model which takes into account the possibility of early exercise of the put in connection with this analysis we simulate the returns to the conversion strategy which combines the purchase of put options and the underlying stocks with the simultaneous sale of the corresponding call options as in our earlier paper on call option strategies we find in this study that investors can use uncovered putoption writing and protective put optionbuying strategies to produce patterns of returns for investment portfolios not reproducible by any simple strategy of combining stock with fixed income securities put options are viewed as term insurance insuring against a loss in value of underlying stock investors sell insurance by using the uncovered put writing strategies and investors buy insurance protecting the value of stocks within a portfolio by using protective put optionbuying strategies no put strategy or call strategy can dominate any other strategy if options are priced correctly although there is no single best strategy for all investors they are not indifferent among strategies because the patterns of returns differ we therefore show these important patterns of returns on put option strategies not only using single stocks but also using portfolios of stocks this research was financed in part by grants from donaldson lufkin jenrette new york the center for research in security prices university of chicago and the national science foundation washington d c 1 merton scholes and gladstein 1978 in the present paper all references to our earlier paper are to this study

targeted characteristics and use of socially marketed preventive health goods evidence from condoms in sub saharan africa social marketing is a popular method for allocating targeted publicly funded preventive health goods in poor countries however low demand among targeted groups may inhibit take up relative to non

targeting with in kind transfers evidence from medicaid home care making a transfer in kind reduces its value to recipients but can improve targeting we develop an approach to quantifying this tradeoff and apply it to home care using randomized experiments by medicaid we find that in kind provision significantly reduces the value of the transfer to recipients while targeting a small fraction of the eligible population that is sicker and has fewer informal caregivers than the average eligible under a wide range of assumptions within a standard model the targeting benefit exceeds the distortion cost this highlights an important cost of recent reforms toward more flexible benefits

self selection and the redistributive impact of in kind transfers an econometric analysis self targeting welfare programs have received increasing attention from economists and policymakers alike this paper provides evidence on the redistributive impact of transferring low quality goods in kind i study a school feeding program in jamaica which distributes a bland snack to all students poorer households and those with a greater number of eligible children are found significantly more likely to self select into the program but against these targeting benefits is a large estimated dead weight loss

the role of potential competition in industrial organization potential competition has been recognized as a mechanism to control the exploitation of market power at least since the work of j b clark 1902 but it was not until 50 years later that economists most notably joe bain and paolo sylos labini refocused attention on the idea with inputs from the theories of imperfect competition optimal control and dynamic games their work evolved into ever more sophisticated models of the reactions of existing competitors to the threat of new competition although the most appropriate models of competitive interaction are those which begin with a specific industry a number of theories have been proposed which attempt to develop more general conclusions my purpose in this paper is to develop an understanding of the strengths and limitations of these alternative theories by examining the available theoretical empirical and institutional knowledge rather than attempt the sisyphean task of recounting every model which relates conditions of entry and market performance i have partitioned the analysis into four major schools of thought according to their most central propositions these are the traditional model of limit pricing dynamic limit pricing the theory of contestable markets and the market efficiency model traditional limit pricing models rest on the assumption that firms respond to entry but are able to earn persistent profits when the structural characteristics of markets make entry difficult dynamic limit pricing is similar but emphasizes that markets can only be temporarily protected from entry contestability theory in its pure form asserts that potential competition is as effective as actual competition in controlling market performance the efficient markets hypothesis broadly interpreted states that markets are workably competitive and that the market structure reflects differential efficiency not strategic behavior while one can construct many other hypotheses about potential competition these classifications

investment bank reputation information production and financial intermediation we model reputation acquisition by investment banks in the equity market entrepreneurs sell shares in an asymmetrically informed equity market either directly or using an investment bank investment banks who interact repeatedly with the equity market evaluate entrepreneurs projects and report to investors in return for a fee setting strict evaluation standards unobservable to investors is costly for investment banks inducing moral hazard investment banks credibility therefore depends on their equity marketing history investment banks evaluation standards their reputations underwriter compensation the market value of equity sold and entrepreneurs choice between underwritten and nonunderwritten equity issues emerge endogenously

the demand for episodes of treatment in the health insurance experiment abstract this paper analyzes claims data from the rand health insurance experiment which were grouped into episodes of treatment the insurance plans in the experiment have coinsurance and a cap on out of pocket spending using new statistical techniques to adjust for the increased sickliness of those who exceed the cap the effects of coinsurance on cost per episode and number of episodes are estimated cost sharing reduced the number of episodes but had little effect on cost per episode people in the experiment responded myopically as their current insurance status changed through the year the price elasticity of spending was about 0 2 throughout the range of coinsurance studied when data permit it the study of episodes complements analyses of annual medical spending by revealing more about how decisions to spend are made within the year

voluntary donations and public expenditures in a federal system proponents of the new federalism argue that nonprofit organizations and local governments will fully offset federal social service expenditure cutbacks the author analyzes this proposition as a competitive game in which donations are motivated by private and public good considerations the author characterizes the response of political economic equilibrium to exogenous changes in federal expenditures when local voters are cognizant of donor reactions partial replacement is the most likely outcome though others are possible copyright 1987 by american economic association

public provision of private goods government may provide a good that can if legally permitted be supplemented by private purchases policy is determined by majority rule under standard assumptions on preferences a majority voting equilibrium exists a regime of positive government provision with no restriction on private supplements is shown to be majority preferred to a regime of either only market provision or only government provision combined public and private expenditure on the good is higher under this dual provision regime than under either of the alternatives under some preference configurations the median income voter is pivotal under others a voter with income below the median is pivotal

the welfare costs of price controls for cars and color televisions in poland contrasting estimates of rent seeking from recent experience the welfare costs of price controls can vary enormously depending on the method of allocating the goods in shortage and the possible rent seeking costs that may result with full rent dissipation the welfare loss from price controls on polish color televisions in 1989 was about ten times the standard estimates of distortion costs which ignore rent seeking and was more than 100 percent of the value of domestic producers sales the methods of allocating cars however did not result in rent seeking costs the domestic price controls were an unintended implicit subsidy to imports subsidies for cars were estimated at 43 percent and for color televisions at 22 percent

asymmetric timely loss recognition adverse shocks to external capital and underinvestment evidence from the collapse of the junk bond market abstract using the collapse of the junk bond market in the early 1990s as an exogenous shock to external capital i document in both difference in differences and triple difference designs that speculative grade firms that recognize economic losses in a timely manner experience a smaller reduction in investment following the collapse the effect is more pronounced for speculative grade firms with a low level of asset liquidation value using the excess bond premium as a proxy for fluctuations in the supply of capital i also extend the generalizability of my findings to a broader sample of 84 421 firm years over the 1972 2011 period

leaving the safety net an analysis of dropouts in an urban conditional cash transfer program summary in poverty reduction programs a significant number of beneficiaries change program status an analysis of oportunidades data from urban mexico shows that beneficiaries that drop out for behavioral and administrative reasons are those who are marginally eligible improving targeting through minimizing errors of inclusion results also indicate that the very poorest recipients particularly in large urban areas and less marginal communities are more likely to drop out increasing the errors of omission households deemed ineligible through a recertification process were those that had obtained basic durables or changed their demographic composition implying that oportunidades retargeting is based on limited information

price controls and rent seeking behavior in developing countries abstract when the price of a good is controlled a nonprice allocation rule must necessarily be substituted for allocation by price examples are first come first served allocation which gives rise to rationing by waiting and allocation by an explicit system of ration coupons with rationing by waiting consumers are induced to pursue activities that economize on waiting costs such as buying a larger quantity per purchase although such responses are individually rational they are socially self defeating in the sense that they lower equilibrium consumer welfare rationing by coupons can avoid some but typically not all of these losses these ideas are developed with examples of model economies and their practical relevance is illustrated with evidence from developing countries

the welfare costs of rationing by waiting with price controls and rationing by waiting rational consumers increase the quantity boughtperpurchase this individually rational response is socially wasteful and the cost of making it is a deadweight loss this cost plus the value of time spent in queues may exceed the total rent transferred from suppliers to consumers by price controls i e the value of resources spent competing for the rent may exceed the rent itself this point is illustrated by an empirical application to gasoline price controls rent seeking exhausts an estimated 116 percent of the rent trangerred the efficiency of the price system is often illustrated lby pointing to the obvious wastes associated with alternative allocation mechanisms for example the queues that accompany price controls and first come first served allocations although rationing by waiting wastes resources in a dramatically visible fashion the magnitude of the waste and the factors that determine it seldom have been examined empirically moreover existing theory on the subject is incomplete unless the first come first served rule is precisely specified consumers will compete for available supplies in ways other than waiting in the model developed below queues cause consumers to compete by increasing amounts bought per trip to the market the analysis demonstrates that such individually rational adjustments only increase the welfare cost of rationing by waiting and thus are socially self defeating the theoretical model is illustrated empirically by estimating the welfare costs of a market wide ceiling on gasoline prices this application was motivated by the availability of two key pieces of information the value of time spent in gasoline queues and the effect of waiting lines on amounts bought per purchase this information was obtained from a survey of motorists conducted during the era of federal gasoline price regulations to focus on competition among consumers one of the inefficiencies that results from price controls is ignored the supply reduction leading to the

on the economics of philanthropy friedman says that he accepts this argument as justifying governmental action to alleviate poverty economists will be familiar with this kind of argument someone takes as a premise that a particular activity is the subject of altruistic concern by individuals he shows that if matters are left to unco ordinated private philanthropy a free rider problem will arise and then he claims that this problem can be solved by some kind of intervention by government this strategy has been used to justify many kinds of intervention including compulsory transfers of income through the tax system hochman and rodgers i969 public policy to stimulate saving and investment marglin i963 sen i967 and the subsidisation or public provision of health care arrow i963 lindsay i969 culyer i976 this whole line of argument rests on a particular theory of private philanthropy which in turn relies on three principal assumptions first there is the publicness assumption the charitable activity in question say the relief of poverty or the provision of health care is a common argument in many individuals utility functions and so is a public good in the theoretical sense samuelson i954 in some cases of private philanthropy it is indisputable that the charitable activity is a public good from which donors derive utility consider for example the case of yachtsmen contributing to the royal national lifeboat institution or potential cancer victims contributing to the cancer research campaign in other cases the assumption takes on a rather different character rich britons contribute towards famine relief in cambodia childless old age pensioners contribute towards the care of handicapped children in such cases one would have to be extremely cynical to believe that the charitable activity furthers the self interest of the donor in any significant way but one might suggest that for purely altruistic reasons the donor derives utility from knowing that less fortunate people are being made better off such an effect will be called an altruistic externality friedman along with all of the other writers quoted in the first paragraph of this paper relies on altruistic externalities to justify the publicness assumption the second assumption is that of utility maximisation each individual s decisions concerning his philanthropic

option portfolio strategies measurement and evaluation it is well known that options can increase the flexibility of returns available from investment strategies papers by ross 1976 breeden and litzenberger 1978 and arditti and john 1980 point toward spanning opportunities which increase the efficiency of the financial markets in meeting the investment objectives of investors while these and other studies have demonstrated the potential of option portfolio strategies in molding the return distribution to better fit risk preferences a number of other studies have used simulation techniques to give an empirical view of just what effect particular option stock and option bond strategies will have in altering risk return patterns a major study in this area is that of merton scholes and gladstein 1978 1982 their study presented in two papers one on call option portfolio strategies hereinafter msgl and the other on put option portfolio strategies hereinafter msg2 presents a broad and insightful discussion of many of the implications of combining options with stock portfolios the msg study employs a 12 5 year period for simulations in the first paper on portfolios using call options and a 14 year simulation period in the second paper on portfolios using put options as they are careful to point out their results depend on market trends which may not match ex ante expecta