assessing the effects of wives earnings on family income inequality we argue that the effect of wives earnings can be assessed meaningfully only by comparing the observed distribution of income with a reference distribution the components of the standard decomposition of the gini coefficient have no implicit reference distribution and therefore should not be interpreted as a measure of the effect of an income source on inequality we suggest several intuitive counterfactual reference distributions and illustrate their use with 1979 and 1989 u s data we conclude that wives earnings reduced inequality in that the income distribution would have been less equal in their absence alternative measures of the impact have mixed results

management ownership and market valuation an empirical analysis we investigate the relationship between management ownership and market valuation of the firm as measured by tobin s q in a 1980 cross section of 371 fortune 500 firms we find evidence of a significant nonmonotonic relationship tobin s q first increases then declines and finally rises slightly as ownership by the board of directors rises for older firms there is evidence that q is lower when the firm is run by a member of the founding family than when it is run by an officer unrelated to the founder

executive incentives and the horizon problem an empirical investigation abstract this paper investigates the hypothesis that ceos in their final years of office manage discretionary investment expenditures to improve short term earnings performance we examine the behavior of r d expenditures for a sample of firms in industries that have significant ongoing r d activities the results suggest that ceos spend less on r d during their final years in office however we find the reductions in r d expenditures are mitigated through ceo stock ownership there is no evidence that the reduced r d expenditures are associated with either poor firm performance or reductions in investment expenditures that are capitalized for accounting purposes

dynamic control of a monopolist s product and process innovation with reference quality our main purpose is to investigate the dynamic control problem of a monopolist s product and process innovation under reference quality the main features of this article are i a monopolist deal

an empirical examination of the relation between debt contracts and management incentives abstract prior research on the factors influencing the use of debt covenants restricting dividends and additional borrowing is extended by considering management incentives when alternative incentive variables are considered separately we find covenants have a significant negative relation to ceo cash compensation an insignificant relation to the value of ceo equity held and significant positive relations to both the ratio of the value of ceo equity holdings to cash compensation and the fraction of equity held by the ceo in two stage simultaneous equations models only the latter is significant when jointly considered with each of the other incentive variables

rising u s earnings inequality and family labor supply the covariance structure of intrafamily earnings this paper studies the labor supply contributions to individual and family earnings inequality during the period of rising wage inequality in the early 1980 s working couples have positively correlated labor market outcomes which are almost entirely attributable to permanent factors an intertemporal family labor supply model with this feature is used to estimate labor supply elasticities for husbands of 0 05 and wives of 0 40 this implies that labor supply explains little of the rising annual earnings inequality for married men but over 20 percent of the rise in family inequality and 50 percent of the modest rise in female inequality

dynamic pricing strategies with reference effects we consider the dynamic pricing problem of a monopolist firm in a market with repeated interactions where demand is sensitive to the firm s pricing history consumers have memory and are prone to human decision making biases and cognitive limitations as the firm manipulates prices consumers form a reference price that adjusts as an anchoring standard based on price perceptions purchase decisions are made by assessing prices as discounts or surcharges relative to the reference price in the spirit of prospect theory we prove that optimal pricing policies induce a perception of monotonic prices whereby consumers always perceive a discount respectively surcharge relative to their expectations the effect is that of a skimming or penetration strategy the firm s optimal pricing path is monotonic on the long run but not necessarily at the introductory stage if consumers are loss averse we show that optimal prices converge to a constant steady state price characterized by a simple implicit equation otherwise the optimal policy cycles the range of steady states is wider the more loss averse consumers are steady state prices decrease with the strength of the reference effect and with customers memory all else equal offering lower prices to frequent customers may be suboptimal however if these are less sensitive to price changes than occasional buyers if managers ignore such long term implications of their pricing strategy the model indicates that they will systematically price too low and lose revenue our results hold under very general reference dependent demand models

dynamic quality policies with reference quality effects abstractdynamic pricing policies with reference price demand have been intensely analysed less studied are dynamic quality policies with reference quality demand this article studies the dynamic quality policy of a firm whose consumers use a reference point in their decision making in line with the principles of behavioural economics more specifically i consider reference quality formation in an optimal control setting by solving on the basis of pontryagin s maximum principle i obtain analytical solutions to the optimal quality policy the managerial implications of quality reference for dynamic quality policy are discussed

corporate bond covenants and social responsibility investment this paper examines the effect of corporate social responsibility csr on the number of bond covenants we find that a high csr score has a negative association with the number of bond covenants moreover our results are more pronounced for firms with a high bid ask spread and high agency costs our analysis highlights the effect of the good stakeholder relationship on the bond contracts

evidence on the impact of the agency costs of debt on corporate debt policy in the last several years there has been increased theoretical emphasis on the agent principal problem as it applies to corporate finance this paper is an attempt to empirically test for the presence of the agency costs and their relation to the debt policy of corporations we find that firms with higher insider ownership have greater debt ratios than firms with lower insider ownership which may be explained by the agency costs of debt and or the agency costs of equity other regression results tend to confirm the theoretically optimal relationships put forth by myers we find that high growth firms use less debt rather than more debt high operating risk firms use more debt rather than less debt and firm size appears to be uncorrelated to the level of debt

a life cycle analysis of family income distribution the question of whether working wives widen or narrow the income gap between rich and poor families is examined using a life cycle analysis data are from the 1973 u s national survey of family growth and concern 5901 currently married women under 45 years of age the results suggest that the employment of wives tends to reduce inequality particularly among white families but to a different degree at different stages of the family life cycle annotation

determinants of intramethod choice in the oil and gas industry abstract procedural flexibility can have a substantial impact on reported costs revenues expenses and balance sheet valuations until 1978 oil and gas companies had considerable flexibility in applying full cost and successful efforts a unique opportunity to measure the income effect of firms procedural choices occurred when the sec specified the exact procedures that must be followed by oil and gas producers when they account for exploratory and development costs under both the full cost and successful efforts methods in complying with the new rules firms were required to adjust retained earnings retroactively to reflect what it would have been if the new procedures had been in effect all along these retained earnings adjustments provide a measure of the income effect of procedural choices this study shows that economic incentives influence the procedural accounting choices which were made by oil and gas producers the same economic incentives also influence the choice of full cost or successful efforts finally the discriminatory ability of firms economci incentives is most powerful when firms reporting strategies are defined in terms of both choice of accounting methods and procedural applications within those methods

creditor protection laws debt financing and corporate investment over the business cycle we examine how legal creditor rights are related to debt financing and corporate investment over the business cycle using firm level data from 40 countries we find that creditor rights are associated with greater debt financing and investment during economic downturns but creditor rights have a significantly smaller effect during expansions the beneficial effects of creditor rights during recessions are stronger for firms that are more likely to have severe shareholder bondholder agency problems we also find that during recessions relative to expansions strong creditor rights are associated with a smaller decline in net capital flows our findings are consistent with credit market frictions increasing during recessions and with stronger creditor rights decreasing the negative effects of these frictions overall the results suggest that better creditor protection laws help moderate the decline in debt financing and investment during recessions

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

using repeated cross sections to explore movements into and out of poverty movements in and out of poverty are of core interest to both policymakers and economists yet the panel data needed to analyze such movements are rare in this paper the authors build on the methodology used to construct poverty maps to show how repeated cross sections of household survey data can allow inferences to be made about movements in and out of poverty they illustrate that the method permits the estimation of bounds on mobility and provide non parametric and parametric approaches to obtaining these bounds they test how well the method works on data sets for vietnam and indonesia where we are able to compare our method to true panel estimates the results are sufficiently encouraging to offer the prospect of some limited basic insights into mobility and poverty duration in settings where historically it was judged that the data necessary for such analysis were unavailable

economic mobility along the business cycle the case of peru the performance of latin american countries in reducing poverty and expanding the middle class has been remarkable by taking a close look at the peruvian experience we examine how this aggregate

how legal environments affect the use of bond covenants we examine how country level legal and institutional investor protection shapes contractual creditor protection we examine debt covenant information from foreign corporate bonds issued in the us from more than 50 countries between 1991 and 2007 we find that bonds of firms incorporated in countries with stronger creditor rights use fewer covenants this finding suggests that creditor protection substitutes for covenants in reducing the agency cost of debt in contrast bonds of firms with stronger shareholder rights or firms with stronger firm level corporate governance use more covenants these findings support the notion that firms with stronger shareholder control may face an increase in the shareholder bondholder conflict and therefore prefer to use more covenants however greater shareholder rights are not associated with the use of more covenant restrictions on equity issuance as firms with greater minority shareholder protection are unlikely to suffer such equity dilution

debt covenant violations and managers accounting responses abstract this paper examines accounting changes costs of default and accounting based covenants violated by 130 firms reporting violations in annual reports i find that managers of firms approaching default respond with income increasing accounting changes and that the default costs imposed by lenders and the accounting flexibility available to managers are important determinants of managers accounting responses i also document that private lending agreements are the first violated that net worth and working capital restrictions are the most frequently violated restrictions and that in 52 percent of the cases lenders require concessions from borrowers to resolve default

empirical research on accounting choice abstract we review research from the 1990s that examines the determinants and consequences of accounting choice structuring our analysis around the three types of market imperfections that influence managers choices agency costs information asymmetries and externalities affecting non contracting parties we conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge we discuss opportunities for future research recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters

agency costs and innovation abstract stylized facts indicate that small firms are responsible for a disproportionate share of innovative research there are many possible explanations for this fact the paper seeks to understand this phenomenon as the outcome of an optimal assignment of tasks across individuals and organizations it is shown that incentive costs associated with a given task depend on the total portfolio of tasks that an individual or an organization undertakes mixing hard to measure activities innovation with easy to measure activities routine is particularly costly since it will either lead to misallocation of attention across tasks or to misallocation of risk larger firms are at a comparative disadvantage in conducting highly innovative research because of the costs associated with managing a heterogeneous set of tasks it is further argued that optimal organizational responses to coordination and control of routine tasks will lead to bureaucratization within the firm and to financial constraints imposed by capital markets both of which are hostile to innovation

on cross sectional analysis in accounting research abstract this paper examines cross sectional analysis procedures common to many market based accounting research papers both the economic and econometric properties of levels and returns studies are discussed topics covered include the relations between the accounting studies and cash flow valuation models the role of expectations of accounting variables deflators spurious inference risk adjustment and its relation to growth size and leverage residual dependence dependence among explanatory variables and the effect of scale differences across firms major conclusions are that market value is the correct deflator in returns studies and that levels and returns studies are economically but not econometrically equivalent

an empirical examination of debt covenant restrictions and accounting related debt proxies abstract prior studies of discretionary accounting choices have generally relied on one or more proxy variables to measure closeness to debt covenant restrictions without actually examining the existence or extent of restrictive covenants this study tests the validity of the most commonly used proxy the debt equity ratio by examining its relation to actual debt covenant restrictions for a random sample of u s firms the results indicate that several versions of the debt equity ratio capture the existence and tightness of retained earnings restrictionsand the existence of net tangible asset and working capital restrictions but are unrelated to four other covenant restrictions

the effect of owner versus management control on the choice of accounting methods abstract this paper examines the relationship between the ownership control status of firms and the accounting methods they adopt the arguments of watts and zimmerman s positive theory are integrated with those of managerial economists to generate the prediction that management controlled firms are more likely than owner controlled firms to adopt accounting methods which increase reported earnings this prediction is inconsistent with fama s hypothesis that the market for managerial talent will prevent management controlled firms from acting differently than owner controlled firms this paper compares the depreciation methods used by a sample of management and owner controlled firms for financial reporting purposes the comparison considers and controls for the factors of firm size leverage and the depreciation method used for tax reporting purposes the comparison reveals that there is a significant difference in the depreciation methods adopted by management controlled and owner controlled firms for financial reporting purposes

firms off balance sheet and hybrid debt financing evidence from their book tax reporting differences we match large u s corporations tax returns during 1989 2001 to their financial statements to construct a firm level proxy of firms use of off balance sheet and hybrid debt financing we find that firms with less favorable prior period standard poor s s p bond ratings or higher leverage ratios in comparison to their industry report greater amounts of interest expense on their tax returns than to investors and creditors on their financial statements these between firm results are consistent with credit constrained firms using more structured financing arrangements our within firm tests also suggest that firms use more structured financing arrangements when they enter into contractual loan agreements that provide incentives to manage debt ratings specifically we find that after controlling for s p bond rating and industry adjusted leverage our sample firms report greater amounts of interest expenses for tax than for financial statement purposes when they enter into performance pricing contracts that use senior debt rating covenants to set interest rates furthermore we find that the greatest book tax reporting changes occur when firms become closer to violating these debt rating covenants these latter findings are consistent with firms contractual debt covenants influencing their use of off balance sheet and hybrid debt financing

ceo compensation in financially distressed firms an empirical analysis this paper studies senior management compensation policy in 77 publicly traded firms that filed for bankruptcy or privately restructured their debt during 1981 to 1987 almost one third of all ceos are replaced and those who keep their jobs often experience large salary and bonus reductions newly appointed ceos with ties to previous management are typically paid 35 less than the ceos they replace in contrast outside replacement ceos are typically paid 36 more than their predecessors and are often compensated with stock options on average ceo wealth is significantly related to shareholder wealth after firms renegotiate their debt contracts however managers compensation is sometimes explicitly tied to the value of creditors claims

explicit solutions of optimization models and differential games with nonsmooth asymmetric reference price effects models in marketing with asymmetric reference effects lead to nonsmooth optimization problems and differential games which cannot be solved using standard methods in this study we introduce a new method for calculating explicitly optimal strategies open loop equilibria and closed loop equilibria of such nonsmooth problems application of this method to the case of asymmetric reference price effects with loss aversive consumers leads to the following conclusions 1 when the planning horizon is infinite after an introductory stage the optimal price stabilizes at a steady state price which is slightly below the optimal price in the absence of reference price effects 2 the optimal strategy is the same as in the symmetric case but with the loss parameter determined by the initial reference price 3 competition does not change the qualitative behavior of the optimal strategy 4 adopting an appropriate constant price strategy results in a minute decline in profits

inequality and poverty in united states the effects of rising dispersion of men s earnings and changing family behaviour using semiparametric density estimation techniques we analyse the effect of rising dispersion of men s earnings and related changes in family behaviour on increasing inequality in the distribution of family income in the united states for the period 1969 1989 the growing dispersion of men s earnings and changing family structure can account for most of the rise in family income inequality by contrast the increase in labour force participation by women offset this trend inequality grew at a slower rate in the 1990s than in earlier decades largely because of stabilization in the relative earnings of men from low income families

the impact of reference price effects on the profitability of price promotions this paper investigates the impact of reference price effects on retailer price promotions and describes why these effects can make promoting profitable first we analyze the profit impact of reference price effects generated by a single period of promotion the promotion can increase profit if the gain that these effects create in the promotion period outweighs the loss they create in future periods we then describe how retailers can estimate the optimal strategy of recurring promotions that maximizes profits from reference price effects over a time horizon examples of such strategies are presented for a retailer selling a national brand of peanut butter we obtain insights into how promotion prices timing and profits are affected by changes in costs interest rates consumers reactions to reference price effects and error in estimates used in the model the retailer s optimal reaction to a trade deal is also examined this strategy involves a phase of increased promotion activity sandwiched between phases of decreased activity we explain these results using the effects described in the single period model

top management compensation and capital structure the interrelationship between top management compensation and the design and mix of external claims issued by a firm is studied the optimal managerial compensation structures depend on not only the agency relationship between shareholders and management but also the conflicts of interests which arise in the other contracting relationships for which the firm serves as a nexus we analyze in detail the optimal management compensation for the cases when the external claims are 1 equity and risky debt and 2 equity and convertible debt in addition to the role of aligning managerial incentives with shareholder interests managerial compensation in a levered firm also serves as a precommitment device to minimize the agency costs of debt the optimal management compensation derived has low pay performance sensitivity with convertible debt instead of straight debt the corresponding optimal managerial compensation has high pay to performance sensitivity a negative relationship between pay performance sensitivity and leverage is derived our results provide a reconciliation of the puzzling evidence of jensen and murphy 1990 with agency theory other testable implications include 1 a relationship between the risk premium in corporate bond yields and top management compensation structures and 2 the announcement effect of adoption of executive stock option plans on bond prices the model yields implications for management compensation in banks and federal deposit insurance reform our results explain the dynamics of top management compensation in firms going through financial distress and reorganization

wage inequality and family labor supply using the march current population surveys and the 1960 census this article describes earnings and employment changes for married couples in different types of households stratified by the husband s hourly wage while declines in male employment and earnings have been greatest for low wage men employment and earnings gains have been largest for wives of middle and high wage men these findings cast doubt on the notion that married women have increased their labor supply in the recent decades to compensate for the disappointing earnings growth of their husbands

estimation in a class of simultaneous equation limited dependent variable models estimation in a class of simultaneous equation limited dependent variable models is considered the minimum chi squared method is used to compare the asymptotic relative efficiency of marginal and new conditional maximum likelihood estimators for this class of models efficient minimum chi squared estimation procedures are described a two step algorithm based on a conditional maximum likelihood estimator provides a natural framework for both computing a linearized and locating the joint maximum likelihood estimator the unimodality of the simultaneous equation tobit likelihood function is proved and this model is used to illustrate the empirical application of some of the estimators considered in the paper the relative efficiency of these estimators in the simultaneous equation tobit model is examined in a set of monte carlo experiments many applications of microeconomic theory to individual data face the joint problems of censoring and simultaneity in particular the dependent variable under investigation may not be continuously observed and some of the conditioning variables representing the outcome of other decisions by the individual may be simultaneously determined smith and blundell 1986 developed an asymptotically efficient test for exogeneity or simultaneity in the simultaneous equation tobit model as a byproduct a conditional maximum likelihood estimator was obtained which is consistent under the alternative hypothesis of simultaneity nelson and olsen 1978 amemiya 1978 1979 and heckman 1978 consider a number of consistent marginal maximum likelihood estimators based on marginal maximum likelihood estimators of the reduced form parameters for the probit and tobit models in contrast the estimator derived from smith and blundell 1986 is based on the corresponding conditional maximum likelihood estimators this paper is concerned with estimation in a class of simultaneous limited dependent variable regression models which includes the simultaneous probit and tobit models as special cases analogous marginal and conditional maximum likelihood estimators to those of nelson and olsen 1978 amemiya 1978 1979 heckman 1978 and smith and blundell 1986 are derived and other new estimators are suggested the minimum chi squared approach discussed by ferguson 1958 malinvaud 1970 and rothenberg 1973 is used to compare the asymptotic relative efficiency of various estimators considered a simple two step algorithm based on the conditional maximum likelihood

modeling the impact of product quality on dynamic pricing and advertising policies abstract the marketing mix of price quality and advertising quality relationship is well studied less understood is the price advertising quality relationship this article fills the gap investigating the interplay between price advertising and quality in an optimal control model our results generalize the condition of dorfman steiner in a dynamic context also they point to the impact of greater product quality on the dynamic policies of pricing and advertising furthermore a phase diagram analysis shows that quality develops monotonically in time and converges to a unique steady state we also show that quality investment could either decrease or increase over time but this depends on its effectiveness our results spot the profitable opportunities of a firm managing a more complex marketing mix

resolving the agency problems of external capital through options this paper investigates the role of stock options in resolving the agency problems of external capital as originally identified by jensen and meckling 1976 these problems are precipitated by managerial incentives a to consume excessive non pecuniary benefits or perquisites beyond the optimal level for sole ownership and b to engage in risk shifting in productive decisions so as to transfer wealth from external capital contributors these incentive problems can be resolved through a strategy that judiciously combines call and put options retained by the owner manager and external financiers respectively the resolution of the agency problems through this mechanism provides an economic rationale for the existence of managerial stock options and convertible debt the work by jensen and meckling 7 has brought more realism to the theory of the firm in their paper jm address agency problems in the context of a firm which is viewed as a nexus of contracts among various factors of production the contractual relationships involve incentive conflicts arising from the pursuit of self interest by limiting themselves to an entrepreneur or owner manager who retains complete control of the firm jm have demonstrated that financing through the issuance of common stock or debt to outsiders engenders costs these costs are precipitated in part by the manager s propensity to consume nonpecuniary benefits or perquisites perks by employing certain resources in excess of their optimal usage 1 and by his propensity to engage in high risk investment projects so as to transfer wealth from bondholders to stockholders 2

long term trends in earnings inequality what the cps can tell us abstract changes in current population survey cps topcoding rules in the 1990s artificially increased measured earnings inequality we create a time consistent cps data series and compare trends in earnings inequality from 1975 to 2001

from earnings inequality to consumption inequality this paper studies the paths from inequality in earnings to inequality in household consumption we show that careful study of the evolution of the variances and covariances of earnings and consumption within cohorts across time can identify permanent and transitory shocks we present an application to the evolution of inequality in the united kingdom we extend previous results to recognise separate earnings of partners in couples

an income strategy approach to the positive theory of accounting standard setting choice abstract this paper is designed to provide additional evidence on the positive theory of accounting policy choice by combining individual accounting principles into firm income strategies these strategies were the dependent variable in a probit analysis where the independent variables were size management compensation industry concentration ratio systematic risk capital intensity and the total debt to total asset ratio the results indicate that four of these factors size management compensation concentration ratio and the total debt to total asset ratio have a significant association with the choice of a firm s income strategy this test provides strong evidence consistent with the positive theory of accounting standard setting choice we also present evidence that smaller firms and or firms in less concentrated industries do not appear to make accounting policy choice decisions that are consistent with this theory

dynamic pricing product and process innovation abstract the question of simultaneous dynamic pricing product and process investment policies is crucial for manufacturing and high tech industries this paper models these policies in an optimal control setting on the supply side the firm sets prices product and process investment levels over time on the demand side current demand depends on price and quality under an additive separable demand function dynamic pricing increases with quality and cost therefore both product innovation and process innovation impact the pricing policy under a multiplicative separable demand function dynamic pricing policy follows the dynamic of production cost and is independent of the evolution of product quality thus process innovation is the main determinant of a firm s pricing policy over time and product innovation has no impact

a life cycle perspective on changes in earnings inequality among married men and women abstract the connection between changes in earnings inequality of individuals and changes in family earnings involves several links the movements in the employment of different family members the association between changes in husbands and in wives earnings and patterns of assortative mating a decomposition of the logarithm of the coefficient of variation in family earnings identifies these links the data on the dispersion of family earnings are organized not simply over time but also by age the growth in wives relative employment and earnings has partly offset the effects on family earnings inequality of the increase in husbands earnings inequality

asymmetric reference price effects and dynamic pricing policies we consider a group of frequently purchased consumer brands which are partial substitutes and examine two situations the first where the group of brands is managed by a retailer and second where the brands compete in an oligopoly we assume that demand is a function of actual prices and reference prices and develop optimal dynamic pricing policies for each situation in addition to researchers studying pricing strategy our results may interest retailers choosing between hi lo pricing and an everyday low price and manufacturers assessing whether to follow procter gamble s lead and replace a policy of funding consumer price reductions through trade deals with a constant wholesale price a reference price is an anchoring level formed by customers based on the pricing environment the literature suggests that demand for a brand depends not only on the brand price but also whether the brand price is greater than the reference price a perceived loss or is less than it a perceived gain the responses to gains and losses are asymmetric broadly speaking we find that when enough consumers weigh gains more than losses the optimal pricing policy is cyclical likewise when they weigh losses more than gains a constant price is optimal thus we provide a rationale for dynamic pricing which is quite distinct from the three explanations previously offered 1 decreasing unit variable costs due to learning effects 2 the transfer of inventory to consumers who face lower inventory holding costs than do retailers and 3 competitive effects our explanations apply even when the other explanations do not i e in mature product categories where learning effects are minimal when retailer inventories are minimized through the use of just in time policies and when competitive effects do not exist as in a monopoly greenleaf 1995 has shown numerically that in the presence of reference price effects the optimal pricing policy for a monopolist can be cyclical we first analytically extend greenleaf s result to a monopolist with a constant cost of goods facing a homogeneous market where all customers either weigh gains more than losses or vice versa using this building block we examine a monopolist retailer managing multiple brands we assume that demand is a linear function of prices of multiple brands and together with an expression which reflects the reference price effect further we assume that the retailer maximizes average profit per period next we analyze a duopoly and extend the results to an oligopoly we assume that the manufacturers are able to set the retail prices as in an integrated channel here we retain the same demand function as for the retailer and derive markov perfect nash equilibria we use two alternative processes of reference price formation the exponential smoothed es past price process which is frequently used in the literature and for the multi brand situations the recently proposed reference brand rb process hardie johnson and fader 1993 in the latter the reference price is the current price of the last brand bought the reference brand we adapt the individual level rb formulation in hardie et al to an aggregate demand specification for the es process we obtain most results analytically for the rb process we use simulation finally we extend our results to a population with two customer segments segment 1 which weighs gains more than losses and segment 2 which does the opposite i e is loss averse when the market consists exclusively of segment 1 customers and es is the reference price process we find that prices are cyclical in all cases analyzed i e for a monopoly a monopolist retailer managing multiple brands a duopoly and an oligopoly if the rb formulation is the underlying process a monopolist retailer managing two brands uses cyclical prices but in a duopoly the equilibrium solution is for the brands to maintain constant prices when all customers belong to segment 2 i e they are loss averse constant prices are optimal in all cases for both reference price formulations when the population consists of both segment 1 and segment 2 and the es process applies we develop a sufficient condition for cyclical pricing policies to be optimal the condition is expressed in terms of the proportion of the two segment sizes the absolute difference between the gain and loss parameters of each segment and their respective exponential smoothing constants interestingly for reasonable values of the latter two factors cyclical policies are optimal even when the proportion of segment 1 is quite small similar magnitudes are obtained numerically for the rb case

dynamic pricing with loss averse consumers and peak end anchoring we study the dynamic pricing implications of a new behaviorally motivated reference price mechanism based on the peak end memory mode this model suggests that consumers anchor on a reference price that is a weighted average of the lowest and most recent prices loss averse consumers are more sensitive to perceived losses than gains relative to this reference price we find that a range of constant pricing policies is optimal for the corresponding dynamic pricing problem this range is wider the more consumers anchor on lowest prices and it persists when buyers are loss neutral in contrast with previous literature in a transient regime the optimal pricing policy is monotone and converges to a steady state price which is lower the more extreme and salient the low price anchor is our results suggest that behavioral regularities such as peak end anchoring and loss aversion limit the benefits of varying prices and caution that the adverse effects of deep discounts on the firm s optimal prices and profits might be more enduring than previous models predict

an exogeneity test for a simultaneous equation tobit model with an application to labor supply a test of weak exogeneity in the simultaneous equation tobit model is proposed and illustrated using a female labour supply model estimated using cross section data the test statistic can be simply output from any standard tobit maximum likelihood package and is asymptotically efficient the procedure provides consistent estimators for the simultaneous tobit model whose asymptotic covariance matrix is a simple extension of the usual tobit formula we also provide the lagrange multiplier test of weak exogeneity this abstract was borrowed from another version of this item