the deadweight loss from non neutral capital income taxation abstract this paper develops an overlapping generations general equilibrium model that treats explicitly the role of capital goods in the production process and uses the model to measure the relative magnitudes of different distortions associated with capital income taxation across industries assets and time one of the main results is that uniform capital income taxation is almost certainly suboptimal theoritically but that optimal deviations from uniform taxation are empirically inconsequencial the paper also introduces and applies a general technique for distinguishing intergenerational transfers from efficiency gains in the analysis of the impact of policy changes on long run welfare

attracting attention cheap managerial talk and costly market monitoring we provide a theory of informal communication cheap talk between firms and capital markets that incorporates the role of agency conflicts between managers and shareholders the analysis suggests that a policy of discretionary disclosure that encourages managers to attract the market s attention when the firm is substantially undervalued can create shareholder value the theory also relates the credibility of managerial announcements to the use of stock based compensation the presence of informed trading and the liquidity of the stock our results are consistent with the existence of positive announcement effects produced by apparently innocuous corporate events e g stock dividends name changes recent regulations such as the sarbanes oxley act stress the importance of providing timely and accurate information to investors in practice firm information can be concealed and is often difficult to substantiate moreover there is likely to be fundamental disagreement between managers and shareholders with respect to the firm s disclosure policy managers can be reluctant to disclose information because for example it may reflect prior poor managerial decisions and hence question their performance inducing managers to disclose information is therefore an essential component of managerial incentives as a result a firm s disclosure and compensation policies are intrinsically related aspects of corporate governance that cannot be considered in isolation this paper develops a theory of information disclosure that incorporates the following two elements first managers who become informed through the course of everyday operations are unwilling to disclose their private information when it reflects poorly on them in this sense the theory explores the trade offs that agency conflicts between managers and shareholders create on information disclosure second apparently innocuous corporate actions such as andres almazan is with the university of texas at austin sanjay banerji is with the university

why the marriage squeeze cannot cause dowry inflation an influential explanation for rising dowry payments is the marriage squeeze the present paper shows this explanation to be internally inconsistent the marriage squeeze argument for inflation relies on the fact that population growth leads to an excess supply of brides in the marriage market this excess supply is resolved by some women postponing marriage so that the average age of brides increases in previous studies the argument is stated informally here a matching model of marriage is developed to formally analyze the link between dowry payments and population growth it is shown that a marriage squeeze cannot yield dowry inflation in fact when women who do not find matches at the desirable marrying age re enter the marriage market as older brides a marriage squeeze is shown to imply dowry deflation population change is therefore not a promising explanation for the observed increases in dowry payments

hedging and coordinated risk management evidence from thrift conversions we provide an explanation for hedging as a means of allocating rather than reducing risk we argue that when increases in total risk are costly firms optimally allocate risk by reducing increasing exposure to risks that provide zero positive economic rents our evidence shows that mutual thrifts that convert to stock institutions increase total risk following conversion consistent with their increased abilities and incentives for risk taking they achieve this increase by hedging interest rate risk and increasing credit risk we provide some evidence that risk management activities are related to growth capacity and management compensation structure attained at conversion

stochastic mechanisms in settings without monetary transfers the regular case abstract we analyze relative performance of stochastic and deterministic mechanisms in an environment that has been extensively studied in the literature on communication e g vincent p crawford joel sobel strategic information transmission econometrica 50 6 1982 1431 1451 and optimal delegation e g bengt holmstrom on the theory of delegation in m boyer r e kihlstrom eds bayesian models in economic theory north holland 1984 pp 115 141 a principal agent model with hidden information no monetary transfers and single peaked preferences we demonstrate that under the common assumption of quadratic payoffs and a certain regularity condition on the distribution of private information and the agent s bias the optimal mechanism is deterministic we also provide an explicit characterization of this mechanism

terror as a bargaining instrument a case study of dowry violence in rural india this ethnographic study examined the sociocultural context of domestic violence and dowry in india and describes a theoretical model and econometric methodology the model was tested with survey data collected from a sub caste of 149 potter families from 3 villages in karnataka state in south india interviews were conducted among 139 adult married women and 130 married men the case studies demonstrate that violence can be used as a way to redistribute resources bargaining over dowry amounts occurs twice once before the marriage and renegotiations after the wife had moved to the husbands family domestic violence may be a weapon in order to obtain higher transfers at the renegotiation stage the model assumes that the level of dowry and the occurrence of violence are determined simultaneously hypotheses tested whether increases in husbands family wealth in the dowry paid and husbands cost of violent behavior reduces the incidence of violence tests determined whether increases in wifes familys wealth and increases in wifes human capital husbands human capital or wifes cost of violence increase violence 23 reported wife beating at some time a 10000 rupee increase in the wifes parents income increased the risk of violence by 4 a 10000 rupee increase in the husbands parents income reduced the risk of violence by 10 a 10000 rupee increase in dowry reduced the risk by 5 an additional male child reduced the risk by 11 female sterilization increased the risk by 16 findings suggest that husbands beat wives when the wifes family is rich and when dowries are small

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

an economic model of early marriage abstract to explain female adolescent marriage patterns around the world we develop a marriage market model with asymmetric information about prospective marriage partners and a noisy signal about the bride s quality during an engagement in equilibrium there is a negative relationship between the age and perceived quality of women on the marriage market and consistent with available evidence older brides make higher net marriage payments the model also implies path dependence in the evolution of adolescent marriage practices over time and persistent effects on marriage practices from transitory shocks model simulations show interventions which increase the opportunity cost of early marriage attenuates the association between bride quality and age triggering a virtuous cycle of marriage postponement

do we now collect any revenue from taxing capital income the wide variation in effective tax rates on income from different types of capital received by different investors creates numerous tax arbitrage opportunities that result in a loss in both government revenue and economic efficiency the objective of this chapter is to estimate the revenue and distributional effects of tax arbitrage using tax data from 1983 by examining the effects of two tax changes that would each substantially reduce the opportunities for tax arbitrage our principal conclusions are as follows 1 taxing real rather than nominal interest income would have raised government revenue in 1983 by 25 5 billion 2 this increase in revenue would occur mainly at the expense of those in the highest tax brackets 3 taxing the cash flow from real capital and exempting from tax any income from financial assets would have raised government revenue by 17 4 billion since this tax change eliminates all distortions to savings and investment decisions our revenue forecast suggests that the tax l

money talks an experimental investigation of cheap talk and burned money we experimentally study the strategic transmission of information in a setting where both cheap talk and money can be used for communication purposes theoretically a large number of equilibria exist side by side in which senders either use costless messages money or a combination of the two we find that senders prefer to communicate through costless messages only when the interest disalignment between sender and receiver increases cheap talk tends to break down and high sender types start burning money to enhance the credibility of their costless messages a behavioral model due to kartik 2009 assuming that sellers bear a cost of lying fits the data best

we will be right with you managing customer expectations with vague promises and cheap talk delay announcements informing customers about anticipated service delays are prevalent in service oriented systems how delay announcements can influence customers in service systems is a complex problem that depends on both the dynamics of the underlying queueing system and on the customers strategic behavior we examine this problem of information communication by considering a model in which both the firm and the customers act strategically the firm in choosing its delay announcement while anticipating customer response and the customers in interpreting these announcements and in making the decision about when to join the system and when to balk we characterize the equilibrium language that emerges between the service provider and her customers the analysis of the emerging equilibria provides new and interesting insights into customer firm information sharing we show that even though the information provided to customers is nonverifiable it improves the profits of the firm and the expected utility of the customers the robustness of the results is illustrated via various extensions of the model in particular studying models with incomplete information on the system parameters allows us also to highlight the role of information provision in managing customer expectations regarding the congestion in the system further the information could be as simple as high congestion low congestion announcements or it could be as detailed as the true state of the system we also show that firms may choose to shade some of the truth by using intentional vagueness to lure customers

approaches to efficient capital taxation leveling the playing field vs living by the golden rule this paper analyzes intersectoral and intertemporal efficiency effects of the tax reform act of 1986 using a general equilibrium model that considers impacts of taxes on the allocation of capital across industries assets sectors and time the model pays close attentiona to capital adjustment dynamics we find that the 1986 reform worsened the intertemporal efficiency of resource allocation by increasing marginal effective tax rates on various uses and types of capital this negative efficiency effect is more that offset however by postivie effects from an improved intersectoral allocation of capital and a reduction of labor market distortions

the rising price of husbands a hedonic analysis of dowry increases in rural india dowries in south asia have steadily risen over the last 40 years and now often amount to over 50 percent of a household s assets this paper attempts to investigate the reasons behind this increase it adapts rosen s implicit market model to the indian marriage market and tests predictions from the model with data from six villages in south central india and from the indian census it is found that a marriage squeeze caused by population growth resulting in larger younger cohorts and hence a surplus of women in the marriage market has played a significant role in the rise in dowries

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

efficient secrecy public versus private threats in crisis diplomacy this paper explores when and why private communication works in crisis diplomacy conventional audience cost models suggest that state leaders must go public to reveal information in interstate crises because leaders cannot enhance their credibility by tying their hands if domestic audiences cannot observe their private signals i present a crisis bargaining game where both the sender and the receiver of signals have a domestic audience the equilibrium analysis demonstrates that a private threat albeit of limited credibility can be equally compelling as a fully credible public threat secrecy works in crisis diplomacy despite its informational ine cacy because secrecy insulates leaders from domestic political consequences when they capitulate to a challenge to avoid risking unwarranted war the logic of e cient secrecy may shed light on the unaccounted history of private diplomacy in international crises the alaska boundary dispute illustrates this logic

a note on cheap talk and burned money abstract austen smith and banks cheap talk and burned money j econ theory 91 1 2000 1 16 study how money burning can expand the set of pure cheap talk equilibria of crawford and sobel strategic information transmission econometrica 50 6 1982 1431 1451 i identify an error in the main theorem of austen smith and banks and provide a variant that preserves some of the important implications i also prove that cheap talk can be influential with money burning if and only if it can be influential without money burning this strengthens a result of austen smith and banks but uncovers other errors in their analysis finally an open conjecture of theirs is proved correct

discretionary rewards as a feedback mechanism abstract this paper studies the use of discretionary rewards in a finitely repeated principal agent relationship with moral hazard the key aspect is that rewards have informational content when the principal obtains a private subjective signal about the agent s performance she may pay discretionary bonuses to provide credible feedback to the agent in accordance with the often observed compression of ratings we show that in equilibrium the principal communicates the agent s interim performance imperfectly i e she does not fully differentiate good and bad performance furthermore we show that small rewards can have a large impact on the agent s effort provided that the principal s stake in the project is small

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

extremist platforms political consequences of profit seeking media we analyze how information about candidate quality affects the choice of electoral platforms made by an office motivated political challenger the incumbent is of known quality and located at the ideal policy of the voter the voter cares for both policy and the candidates quality and can learn about the challenger s quality by buying information a high quality challenger then has an incentive to signal her quality by choosing a policy that induces the voter to buy information we first study the benchmark case in which the information is supplied exogenously and its quality is independent of the challenger s platform this yields multiple equilibria and indeterminacy of equilibrium platforms by contrast when the information is supplied by a profit maximizing media outlet its quality depends on the challenger s platform and we obtain a unique equilibrium platform in particular when the incumbent s quality is relatively low the media coverage rises and the challenger s platform diverges further from the voter s ideal policy as the voter s preference for quality increases

optimal managerial contracts and equilibrium security prices recent developments in economic theory have focused attention on efficient methods for providing incentives within a corporation especially to top management jensen meckling 12 have examined some implications of incentive or agency problems for corporate finance in this paper we combine a simple model of security market equilibrium with that of an optimal managerial incentive contract using results of harris raviv 8 and holmstrom 9 we provide a rationale for including security prices in the managerial incentive contracts of publicly held firms in this model we also show that non systematic diversifiable risks will be considered in the capital budgeting decisions of a managerial firm operated in the interests of its stockholders this is in contrast to the implication of the arbitrage pricing theory a similar result follows from the capital asset pricing model which abstracts from incentive problems and suggests that only systematic risks ought to be considered the optimal contract model of the corporation takes the following view of the firm since decision makers within a firm are not sole owners of the business but employed agents the decisions which they make depend on the incentives which the organization provides these incentives are embodied explicitly in employment contracts and implicitly through the threat of dismissal or effect on reputation the contract whether explicit or not describes the decision maker s anticipation of the consequences to him conditional on various observable outcomes these outcomes are used to provide information useful in determining whether he did his job properly in the simplest optimal contract scenario there is a single principal and a single agent whose decision concerns the level of effort he expends the level of effort affects the level of output of the firm but not unambiguously because the output is also governed by other stochastic elements as a result some information about the agent s level of effort can be inferred

do antitrust laws facilitate collusion experimental evidence on costly communication in duopolies bertrand supergames with non binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets the experimental design consists of three treatments with different costs of communication zero cost low cost and high cost prices are found to be significantly higher when communication is costly moreover costly communication decreases the number of messages but more importantly it enhances the stability of collusive agreements mccutcheon 1997 presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices although our experimental results do not support the mechanism of mccutcheon s 1997 argument the findings point in the direction of her prediction that antitrust laws might work in the interest of firms

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

cheap talk and burned money we augment the standard crawford sobel 1982 econometrica 50 1431 1451 model of cheap talk communication by allowing the informed party to use both costless and costly messages the issues on which we focus are the consequences for cheap talk signaling of the option to burn money and the circumstances under which both cheap talk and burned money are used to signal information

cheap talk with two audiences these problems have in common a simple structure an informed sender says something to two interested but uninformed receivers who then take actions based on their beliefs these actions affect the sender as well as the receivers in this paper we study how costless nonverifiable claims cheap talk can affect these beliefs and hence the actions and how the incentives for truthful revelation to one receiver are affected by the presence of the other we then ask how welfare is affected by whether claims are made in public or in private as some of the above examples suggest public messages may be more credible than private messages addressed to either audience one possibility is that the presence of one audience can discipline the sender s relationship with the other we call this one sided

warning labels as cheap talk why regulators ban drugs abstract one explanation for drug bans is that regulators know more than consumers about product quality but why not just communicate the information in their ban perhaps via a would have banned label because product labeling is cheap talk any small market failure tempts regulators to lie about quality inducing consumers who suspect such lies to not believe everything they are told in fact when regulators expect market failures to result in under consumption of a drug and so would not ban it for informed consumers regulators ex ante prefer to commit to not banning this drug for uninformed consumers

military coercion in interstate crises in an international crisis states make demands backed by threats to use force although these threats can be explicit in diplomatic communications they will not generally carry much weight unless substantiated by some show of force military measures designed to convey the commitment to resort to arms if one s demands are not satisfactorily met to have an impact this commitment must be credible it must be in one s interest to carry out the threat if the opponent refuses to comply in an environment where states possess private information about their valuations capabilities or costs credibility can be established by actions that a state unwilling to fight would not want or would not dare to take military moves such as arms buildups troop mobilizations and deployments to the potential zone of operations can alter incentives in a crisis by changing one s expected payoff from the use of force these are tacit bargaining moves that can restructure the strategic context thereby creating and possibly signaling one s commitments while undermining those of the opponent how can states use the military instrument to establish commitments and how does the nature of the instrument affect their ability to communicate them credibly to their adversaries there are two distinct mechanisms for credible signaling in economic models information can be transmitted reliably by sinking costs actors burn money to reveal that they value the disputed issue even more in contrast theories of interstate crisis bargaining usually rely on choices that increase the difference between backing down and fighting actors tie their hands by running higher risks of war to reveal their resolve the first mechanism involves costs that actors pay regardless of outcome and the second involves costs that actors pay only if they fail to carry out some threat or promise

financial development and economic growth the role of stock markets utilizing time series methods and data from five developed economies we examine the relationship between stock market development and economic growth controlling for the effects of the banking system and stock market volatility our results support the view that although both banks and stock markets may be able to promote economic growth the erects of the former are more powerful they also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross country growth regressions

the importance of asymmetric tax policy and dangers of aggregation existing tax policies have many complex features that make distinctions across goods factors and financial structures that distort economic allocations their importance is ignored when tax policy is summarized by an effective tax rate in fact the losses due to asymmetries are often larger than the losses due to the level of taxation

capital income taxation with imperfect competition a key feature of modern dynamic economies is imperfect competition some imperfect competition is due to institutions such as patents and copyrights that allow firms to exercise market power over the sale of products they invent some imperfect competition is due to various forms of increasing returns to scale and product differentiation since market power is an essential feature of innovation and growth in the new economy as it was in the old economy we need to know how imperfect competition affects the conventional wisdom on tax policy i argue that it has particularly striking implications for the taxation of capital the current consensus among economists is

inequality lobbying and resource allocation this paper describes how wealth inequality may distort public resource allocation a government seeks to allocate limited resources to productive sectors but sectoral productivity is privately known by agents with vested interests in those sectors they lobby the government for preferential treatment the government even if it honestly seeks to maximize economic efficiency may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies broadly speaking both poorer economies and unequal economies display greater public misallocation the paper warns against the conventional wisdom that this is so because such governments are more corrupt jel d72 d78 d82 016 in this paper we propose a particular channel through which wealth inequality distorts the resource allocation process our analysis rests on four premises

fiscal policy inflation and the accumulation of risky capital the effect of government policies on the level of investment and inflation has become a major concern of policy makers in a number of industrial countries proposals to raise the level of business investment have included overall tax cuts tax incentives to spur investment and a reduction in the level of government spending this paper presents a theoretical apparatus to explore the relationships between fiscal policy government debt inflation and capital accumulation it develops a one sector growth model embodying a stochastic production function and government fiscal policy atomistic agents in the economy choose consumption levels and allocate their wealth between risky capital and risky government debt to maximize expected discounted utility over an infinite horizon fiscal policy by affecting asset yields affects the composition of portfolios the price of government bonds and the accumulation of capital the model is used to answer three general questions 1 does the level of government expenditure affect the rate of capital accumulation and inflation in steady state 2 does the mode of government finance when the choice is between an income tax and deficit finance affect these magnitudes 3 what is the effect of uncertainty in the productivity of capital on growth the analysis relates to several areas of literature 1 the analysis of the relationship between capital accumulation and debt 2 the theory of the demand for government debt 3 considerations of the effect of income taxation on risk bearing and 4 the analysis of capital accumulation under uncertainty 1 the effects on output and the capital stock of the government s expenditure decision and its decision to finance its expenditure by taxation or debt issue are explored in two major bodies of economic theory the literature on the burden of the debt as developed by modigliani 1961 diamond 1965 and phelps and shell 1969 for example implies that policies which increase the value of outstanding government debt will tend to lower the level of the capital stock by displacing capital with public debt in private wealth the theory of money and growth as represented by tobin 1965 and sidrauski 1967b also implies that government debt displaces capital but specifically recognizes the role of capital gains on government debt

bequests as signals an explanation for the equal division puzzle in the united states more than two thirds of decedents with multichild families divide their estates exactly equally among their children in contrast gifts given before death are usually unequal these findings challenge the validity of existing theories regarding the determination of intergenerational transfers in this paper we develop a theory that accounts for this puzzle based on the notion that the division of bequests provides a signal about a parent s altruistic preferences the theory can also explain the norm of unigeniture which prevails in other societies

the relation between price and marginal cost in u s industry an examination of data on output and labor input reveals that some u s industries have marginal cost well below price the conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output in booms firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs the paper documents the disparity between price and marginal cost where marginal cost is estimated from annual variations in cost it considers a variety of explanations of the findings that are consistent with competition but none is found to be completely plausible

optimal taxation and spending in general competitive growth models abstract we find that the optimal long run tax on capital income is zero even if the capital stock does not converge to a steady state nor to a steady state growth rate the optimal tax on human capital is also zero if human capital is not a final good but the long run wage tax is not generally zero we argue that consumption tax proposals such as the flat tax are not consumption taxes and are biased against human capital

costly information transmission in continuous time with implications for credit rating announcements abstract this paper formulates a continuous time information transmission model in which an altruistic sender privately observes a stochastic state variable and incurs a communication cost when she broadcasts a message we characterize the sender s optimal announcement strategy using an ordinary differential equation we prove the optimality of the sender s strategies using a martingale verification argument and show that the sender s optimal strategy involves sending discrete messages furthermore we apply the model to the timing decision of credit rating announcements and provide a framework to study various aspects of rating announcements such as the probability of rating reversals and the expected time before a rating change

managerial discretion in the choice among financial reporting alternatives abstract this paper considers the role of an agent choosing among reporting alternatives when that choice is unobserved by the principal and the agent s compensation contract is optimal the agent is allowed to take post outcome costly actions which lead to more precise reports of actual profits than would be yielded by less precise but costless conventional translations of outcomes e g gaap the extent to which the principal allows the agent this discretion depends upon the improvement in profits as an indicator of the agent s pre outcome effort when post outcome actions take place versus the attendant cost of these actions

persuasion with communication costs this paper studies strategic transmission of verifiable information with reporting costs that continuously increase in the precision of the report contrary to previous literature it is shown that the unraveling result first derived by milgrom 1981 is relatively robust to costly reporting a separating equilibrium exists even with arbitrarily high reporting costs intuitively the costs work as a signaling device and a combination of disclosure of information and costly signaling accomplishes full separation with reporting costs there are typically multiple equilibria for example a pooling equilibrium exists if and only if the reporting costs are high finally a separating equilibrium exists when the receiver has to make a costly effort in order to access the information in a report as long as this cost is not too high

a simple approach to arbitrage pricing theory the following sections are included introductionarbitrage pricingdiscussionreferencesdiscussion notes on the arbitrage pricing theorypure arbitrage pricing theoryapproximate arbitrage and the aptapproximate factor modelsthe competitive equilibrium version of the aptconclusionnotereferences this abstract was borrowed from another version of this item

forcing firms to talk financial disclosure regulation and externalities we analyze a model of voluntary disclosure by firms and the desirability of disclosure regulation in our model disclosure is costly it has private and social value and its precision is endogenous we show that i a convexity in the value of disclosure can lead to a discontinuity in the disclosure policy ii the nash equilibrium of a voluntary disclosure game is often socially inefficient iii regulation that requires a minimal precision level sometimes but not always improves welfare iii the same is true for subsidies that change the perceived cost of disclosures and iv neither regulation method dominates the other article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

reverse gender gap in schooling in bangladesh insights from urban and rural households this paper documents a reverse gender gap in secondary schooling outcomes in bangladesh drawing upon several rounds of nationally representative household survey data in terms of enrolment status and years of schooling completed boys are found to lag behind girls in the rural as well as in the urban area within the urban sample the gender gap is widest in the non metropolitan area these findings are robust to extensive control for demand and supply side determinants of schooling and remain unchanged even when we use a within household estimator we consider one hypothesis namely gender differentiated response to a conditional cash transfer program to reconcile the findings of this reverse gender gap

cheap talk can matter in bargaining this paper describes an intuitive way in which cheap talk can matter in a twostage bargaining game in which talk may be followed by serious negotiation the intuition that all buyers would claim to have low reservation prices is incorrect in our model instead if good faith participation is endogenously determined then the parties can use talk to trade off bargaining position against the probability of continued negotiation our cheap talk equilibrium features bargaining behavior that could not be equilibrium behavior in the absence of talk

the market reaction to stock splits in this paper a model of market reaction to stock splits is presented and tested we argue that the announcement of a split sets off the following chain of events the market recognizes that subsequent to the reverse split ex day the daily number of transactions along with the raw volume of shares traded will increase decrease this increase in volume results in an increase in the noisiness of the security s return process the increase in noise raises the tax option value of the stock and it is this value that generates the announcement effect of stock splits empirical evidence using security returns daily trading volume and shareholder data strongly supports this theory the evidence in conjunction with this theory also agrees with extant literature that splits result in decreased liquidity but there is no evidence that this reduction in liquidity is priced stock splits have presented finance theorists with a conundrum these nonevents seem to be a purely cosmetic change nevertheless research shows that significant price reaction is attributable directly to splits recently grinblatt masulis and titman 12 show that even in clean cases i e where no other firm specific event coincides with a split announcement stock splits generate a positive abnormal return of close to three percent upon announcement and an additional one percent abnormal return on the ex day the primary contribution of this paper is to provide and empirically support a rational explanation for the split reverse split announcement effect a recent study by ohlson and penman 16 documents a statistical aberration that stock volatilities increase by an average of thirty five percent subsequent to split ex days in this paper we provide a direct statistical extension of ohlson and penman in three directions first we examine reverse splits and demonstrate that they exhibit reductions in volatility second we isolate the shift in volatility as between the nonsystematic and systematic components finally we establish a link between trading volume and the increased volatility copeland 9 shows that contrary to market folklore the liquidity of a stock is actually reduced by a split we provide a statistical extension to copeland by examining the volume pattern of reverse splits copeland observes a drop in split adjusted volume and concludes that liquidity has declined once again we show that the behavior of stocks that reverse split is opposite that of splitting stocks

the welfare cost of factor taxation in a perfect foresight model this paper examines the marginal efficiency cost of various factor taxes in a dynamic general equilibrium model the au thor solves for the excess burden of anticipated and unanticipated t emporary and permanent tax policies using a range of estimates for taste and technology parameters he finds excess burdens larger than those indicated by previous studies that use static models these exc ess burdens are sensitive to parameter values and timing however th e rankings of alternative tax policies turn out to be insensitive to structural parameter values copyright 1987 by university of chicago press

optimal dynamic mechanism design with deadlines a seller maximizes revenue from selling an object in a dynamic environment with buyers that differ in their patience each buyer has a privately known deadline for buying and a privately known valuation first we derive the optimal mechanism neglecting the incentive constraint for the deadline the deadline of the winner determines the time of the allocation and therefore also the amount of information available to the seller when he decides whether to allocate to a buyer depending on the shape of the markup that the seller uses this can lead to a violation of the neglected incentive constraint we give sufficient conditions on the type distribution under which the neglected constraint is fulfilled or violated second for the case that the constraint cannot be neglected we consider a model with two periods and two buyers here the optimal mechanism is implemented by a fixed price in period one and an asymmetric auction in period two the asymmetry which is introduced to prevent the patient type of the first buyer from buying in period one leads to pooling of deadlines at the top of the type space

public trading and private incentives this article studies the link between public trading and the activity of a firm s large shareholder who can affect firm value public trading results in the formation of a stock price that is informative about the large shareholder s activity this increases the latter s incentives to engage in value increasing activities indeed if he has to liquidate part of his stake before the effect of his activity is publicly observed a more informative price rewards him for his activity implications are derived for the decision to go public capital structure and security design we consider a firm with a large shareholder and otherwise dispersed shares which are publicly traded the block holder is an insider in the sense that he can undertake actions that directly affect the firm s value moreover the insider might not take all value increasing actions as at least some of them involve a private cost for him in other words there is an incentive problem the article s main premise is that public trading as part of the price formation process generates information not only about exogenous factors affecting firm value but also about the insider s activity for instance as a result of public trading a firm s stock price will incorporate the market s evaluation of how a controlling shareholder allocates corporate resources we identify two sources of incentives for the insider to engage in activities that will increase firm value the first one is his stake in the firm since the insider participates in a value increase in proportion to his equity stake a larger stake increases the benefit to him from the firm value being high the view that large shareholders affect firm value is indeed widespread shleifer and vishny 1997 they alleviate the free rider problem pervasive in firms with passive dispersed investors unable or unwilling to affect the firm s operations that is outsiders

strategic communication with lying costs i study a model of strategic communication between an uninformed receiver and an informed but upwardly biased sender the sender bears a cost of lying or more broadly of misrepresenting his private information the main results show that inflated language naturally arises in this environment where the sender almost always claims to be of a higher type than he would with complete information regardless of the intensity of lying cost there is incomplete separation with some pooling on the highest messages the degree of language inflation and how much information is revealed depend upon the intensity of lying cost the analysis delivers a framework to span a class of cheap talk and verifiable disclosure games unifying the polar predictions they make under large conflicts of interest i use the model to discuss how the degree of manipulability of information can affect the trade off between delegation and communication copyright 2009 wiley blackwell

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

optimal limited authority for principal abstract this article studies a principal agent problem where the only commitment for the uninformed principal is to restrict the set of decisions she makes following a report by the informed agent we show that an ex ante optimal equilibrium for the principal corresponds to a finite partition of the state space and each retained decision is ex post suboptimal for the principal biased toward the agent s preference generally an optimal equilibrium does not maximize the number of decisions the principal can credibly retain compared to no commitment limited authority improves the quality of communication from the agent as a result it can give the principal a higher expected payoff than delegating the decision to the agent

secrecy two sided bias and the value of evidence abstract we provide necessary and sufficient conditions on players preferences for a verifiable message game to possess a separating equilibrium and or a pooling equilibrium as well as sufficient conditions for every equilibrium of such a game to be pooling we also characterize all nonseparating equilibria and use this property to show that less information might be conveyed in any equilibrium of a verifiable message game than in some equilibrium of the cheap talk game with the same parameters

information aggregation in a noisy rational expectations economy abstract this paper analyzes a general equilibrium model of a competitive security market in which traders possess independent pieces of information about the return of a risky asset each trader conditions his estimate of the return both on his own private source of information and price which in equilibrium serves as a noisy aggregator of the total information observed by all traders a closed form characterization of the rational expectations equilibrium is presented a counter example to the existence of fully revealing equilibrium is developed

tax reform and u s economic growth in this paper we evaluate the impact of the tax reform act of 1986 on u s economic growth we first calculate effective tax rates on income from capital employed in corporate noncorporate and household sectors we then project the future growth of the u s economy with and without the 1986 tax reform we find that much of the potential gain in welfare was dissipated through failure to index the income tax base for inflation the most promising avenue for future reform is to include income from household assets in the tax base while reducing tax rates on business income