the effect of initial inequality on meritocracy a voting experiment on tax redistribution abstract according to alesina and angeletos 2005 societies are less redistributive but more efficient when the median voter believes that effort and talent are much more important than luck in determining income we test these results through a lab experiment in which participants vote over the tax rate and their pre tax income is determined according to their performance in a real effort task with leisure time subjects receive either a high or a low wage and this condition is either obtained through their talent in a tournament or randomly assigned we compare subjects decisions in these two different scenarios taking into consideration different levels of wage inequality in our framework this initial income inequality turns out to be crucial to support the theoretical hypothesis of alesina and angeletos 2005 overall we find that only if the wage inequality is high subjects choose a lower level of income redistribution and provide a higher effort level in the scenario in which high wage subjects are selected based on their talent through a tournament than when it is randomly assigned thus we confirm almost all theoretical results in alesina and angeletos 2005 when the wage inequality is high enough the big exception is for efficiency measured as the sum of total payoffs since theoretical results are not significant for both wage inequality scenarios

clustering and competition in asset markets economists financial commentators regulatory agencies and the legal community have recently criticized the nasdaq stock market inc because there is greater clustering of stock quotations on even eighths on nasdaq than on the new york stock exchange or the american stock exchange a phenomenon which critics attribute to collusion or some other defect in nasdaq market structure however as this article demonstrates clustering occurs in varying degrees in many other incontestably competitive financial markets including the nyse the amex the london stock exchange the london gold market and the international foreign exchange market this article provides a competitive theory of clustering that emphasizes the effect of uncertainty the size of transactions volatility and the informational and transactional roles of quotations on the degree of clustering in addition the article examines how market structure can affect the degree of clustering and considers the relation between clustering spread

volume liquidity and liquidity risk abstract many classes of microstructure models as well as intuition suggest that it should be easier to trade when markets are more active in the data however volume and liquidity seem unrelated over time this paper offers an explanation for this fact based on a simple frictionless model in which liquidity reflects the average risk bearing capacity of the economy and volume reflects the changing contribution of individuals to that average volume and liquidity are unrelated in the model but volume is positively related to the variance of liquidity or liquidity risk empirical evidence from the u s government bond and stock markets supports this new prediction

a glimpse through the veil of ignorance equality of opportunity and support for redistribution abstract this study is an experimental investigation into preference for redistribution of income it had been hypothesized that belief in equality of opportunity in a society diminishes support for the welfare state this could potentially explain the low taxes and social benefits in the united states vis a vis europe to verify this hypothesis participants in an experiment were assigned different probabilities of winning and matched in groups of four next before finding out who would actually win they selected preferred transfers to be paid by the winners to the group as a whole it was found that the average transfers were about 20 lower in the sessions in which winning was determined by performance in a task rather than by sheer luck this difference cannot be explained by overconfidence in predicting own score it corroborates the conjecture that perceived determinants of success i e whether poverty results from laziness or bad luck affect the support for redistribution on the other hand greater inequality of opportunity measured simply by dispersion of probabilities of winning within a group did not lead to higher transfers

status seeking income taxation and efficiency abstract it is well known that status seeking produces distortions in consumption competition to achieve status leads to over consumption of those goods which confer status it has been found that taxing such goods may even lead to pareto improvements in this paper we extend a model of status which relies on a signalling equilibrium approach to include the individual labour supply decision and an income tax we show that a pareto improving income tax can exist even with the simplest tax benefit scheme a number of results follow the model is extended to a two period analysis to accommodate the reputation building element of status achievement without altering the conclusions

estimating systemic risk in the international financial system this paper develops three distinct methods to quantify the risk of a systemic failure in the global banking system we examine a sample of 334 banks representing 80 of global bank equity in 28 countries around five global financial crises our results suggest statistically significant but economically small increases in systemic risk although policy responses are endogenous the low estimated probabilities suggest that the distress of central bankers regulators and politicians about the events we study could be overstated and that current policy responses to financial crises could be adequate to handle major macroeconomic events

the impact of social mobility and within family learning on voter preferences evidence from a sample of twins abstract income maximizing consumers should vote in predictable ways support for liberal redistributive governments should fall as income rises but weak empirical evidence for these voting patterns might suggest that voters are influenced by alternative factors such as perceptions of social mobility from within family learning to examine these effects this paper uses a data set of twins and a recently developed econometric approach to show that within family learning and family specific effects are important determinants of voting preferences and preferences for redistribution

the ostrich effect and the relationship between the liquidity and the yields of financial assets this article documents that government t bills provided a higher yield to maturity than an equally risky illiquid asset bank deposits in israel the difference between the return on the liquid asset relative to the illiquid asset is higher in periods of greater uncertainty this cannot be attributed to taxes risk or transaction costs we suggest that the observed puzzle is due to the positive correlation between liquidity and the flow of market information we use the term ostrich effect to describe investor behavior since ostriches are believed to treat apparently risky situations by pretending they do not exist

the market reaction to international cross listings evidence from depositary receipts abstract this paper examines the stock price impact of international dual listings the sample consists of 181 firms from 35 countries that instituted their first depositary receipt program over the period 1985 1995 the market reaction to a depositary receipt program is larger in magnitude and more pervasive than previously reported the stock price reaction is related to choice of exchange geographical location i e emerging or developed markets and avenues for raising equity capital i e public versus private offerings

estimating willingness to pay for improved water quality in the presence of item nonresponse bias this article deals with the problem of item nonresponse in contingent valuation surveys using a payment card method by applying a grouped data sample selection estimation technique that is capable of imputing the missing values conditional upon a respondent s decision to answer a willingness to pay question the advantage of the technique lies in its ability to utilize all of the information in the sample permitting a more efficient estimation in the presence of item nonresponse bias the major determinants of willingness to pay appear to be household income number of children education perception of existing water quality and identification with environmental issues copyright 2003 oxford university press

merit approbation and the evolution of social structure in this paper we study a society in which individuals gain utility from income and from social approbation income is correlated with class approbation is given to an unobservable trait which must be signalled through the agent s social mobility i e class change mobility is driven by a simple mechanism involving inheritance effort and ability thus social structure class composition is affected by individuals quest for approbation and we study how that affects the emergence and multiplicity of long run social organizations including hybrid forms of dynasties and meritocracies specifically we observe that even though social mobility is driven purely by a meritocratic mechanism pure dynasties can emerge we then introduce a feedback between the size of the upper class and its income value so that effort levels and social structure are jointly endogenous we derive results on equilibrium effort levels and stationary when they exist social structures social organization can converge to a unique steady state multiple long run equilibria or cycles

the puzzle in post listing common stock returns prior studies indicate that common stocks tend to earn negative returns immediately following listing on the nyse the authors document the phenomenon in detail and investigate a number of possible explanations no full explanation is discovered although several are ruled out a number of studies have examined common stock returns around the time at which the stocks became listed on a major stock exchange these studies cover a variety of time periods and employ a variety of empirical methodologies but they reveal two common patterns in stock returns first stocks appear to rise in price immediately prior to listing second stock prices appear to decline immediately thereafter for example ule 26 examines a sample of twenty nine overthe counter otc stocks that listed on the new york stock exchange nyse or the curb exchange over the period 1934 through 1937 he compares monthly stock price changes with changes in an appropriate industry index over a sixmonth period prior to and following listing ule reports that the prices of the stocks in his sample increased relative to their respective industry indexes prior

pride and prejudice using ethnic sounding names and inter ethnic marriages to identify labour market discrimination labour markets discriminate against workers with particular ethnic sounding names we use non random sorting into interethnic marriage and salient differences between sephardic and ashkenazi surnames to evaluate the causal impact of sephardic affiliation on wages using the 1995 israeli census we estimate the effect of a sephardic sounding surname on wages we first compare the wages of israeli jewish males born to sephardic fathers and ashkenazi mothers sa who are more likely to carry a sephardic surname with the wages of israeli jewish males born to ashkenazi fathers and sephardic mothers as we find that israeli labor markets discriminate based on perceived ethnicity sa workers earn significantly less than their as counterparts we then exploit the custom of women to adopt their husbands surnames to disentangle actual ethnicity from the ethnicity perceived by the market consistent with ethnic discrimination based on surnames we find that it is father in law s ethnicity rather than father s ethnicity that shapes female wage rates finally we find that labor markets discriminate based on surname only when those names provide additional information about ethnicity when ethnicity can be discerned from skin tone surnames do not provide additional explanatory power with respect to wages

vagabond shoes longing to stray why foreign firms list in the united states abstract how do firms that go public decide whether to list on a major stock exchange or locally using a unique data set on israeli ipos in the us and tel aviv we show that companies that list in the us are young and overwhelmingly high tech oriented we argue that high quality innovative firms are willing to incur additional costs associated with listing in the us in order to reveal their value and distinguish themselves from firms that issue stock back home costs of listing in the us include first day underpricing and relinquishing corporate control

agents watching agents evidence from pension fund ownership and firm value abstract this paper examines the valuation effects associated with the incentive structures of different types of institutional investors using the ownership levels of public and private pension funds in a firm the results suggest that institutional monitoring is associated with valuation effects when both observable and unobservable aspects of the relationship between institutions and firms are taken into account moreover the valuation effects vary according to the objective functions of institutions administrators thus other shareholders do not necessarily benefit from relationships between institutions and managers and they could be hurt when the institutional agents watching firm agents have conflicts of interest with other shareholders

the role of american depositary receipts in the development of emerging markets using a sample of 28 stock markets this chapter presents an empirical exploration of the effect of american depositary receipts adrs on emerging market development we examine the role of adrs on three aspects of market development openness defined as the degree of market transparency and reliability liquidity a measure of market activity and growth which attempts to measure the market s ability to foster the formation of new enterprises and encourage economic growth the preliminary evidence from the study is mixed adrs are instrumental in increasing openness but negatively impact both liquidity and the ability of the local market to foster economic growth also the effect of large firms listing adrs is detrimental to the development of the local market

what do we really know about wages the importance of nonreporting and census imputation in the most frequently used microdata sets over a quarter of all respondents now refuse to answer some questions about their incomes the census bureau has dealt with this problem which has been increasing in severity over time by imputing incomes of non respondents their imputation procedure called the hot deck essentially matches nonrespondents with demographically similar donors in this paper we evaluate the census imputation methodology and raise some questions first the census procedure is tied to commonality of events in the population rather than the more appropriate informational content of regressors clearly the census procedure severely understates income in certain occupations because it is based on the apparently invalid assumption that income does not affect reporting propensities it most likely understates average incomes as well

stock splits signaling or liquidity the case of adr solo splits abstract stock splits should have no effect on firm value in perfect capital markets yet stock prices increase on split announcements the two traditional explanations are information signaling and improved liquidity for shares that trade at lower prices we investigate these explanations by studying splits of american depositary receipts adrs that are not associated with splits in their home country stock and which represent unique illustrations of the effect of liquidity we interpret our findings as supportive of the liquidity explanation of stock split announcement effects

does investor recognition predict returns abstract merton 1987 a simple model of capital market equilibrium with incomplete information journal of finance 42 483 510 shows that stocks about which not all investors are informed should yield a return premium this premium depends on the shadow cost of incomplete information which in turn depends on the shareholder base relative market size and idiosyncratic risk utilizing a comprehensive database of swedish shareholdings we demonstrate that stock returns are positively related to the shadow cost we also find that the shareholder base is negatively related to returns when controlling for size and idiosyncratic risk zero cost portfolios based on the shadow cost shareholder base yield substantial trading profits that are never positively correlated with the market and are only modestly explained by the four factor model

the contribution of market makers to liquidity and efficiency of options trading in electronic markets this paper examines the contribution of market makers to the liquidity and the efficiency of the options market in a unique setup of an order driven computerized trading system in which market makers and other participants operate under equitable conditions the main findings are 1 liquidity increased a 60 increase in trading volume and a 35 decrease of bid ask spreads 2 the efficiency of shekel euro options trading improved deviations from put call parity decreased significantly by 12 and skewness decreased by about 30 we also find that the net cost to the exchange is out weighted by the benefit to the trading public and that the presence of market makers encouraged trading between other participants far beyond their own trading 2005 elsevier b v all rights reserved

income and the substitution pattern between domestic and international tourism demand this article analyses the role of income in the decision of participating in the tourism demand within 1 year the tourists who are participating can travel to domestic destinations only abroad destinations only or to both of them such a substitution pattern is modelled using a bivariate probit model the analysis is carried out to the regional level using a survey conducted in 15 european eu 15 countries in addition to the traditional socioeconomic variables the analysis adds new variables to the outbound tourism demand modelling such as the attributes of the place of residence the results show that tourism demand is income elastic however there are marked differences in the income elasticities of the probabilities of travelling domestically or abroad above certain income threshold the substitution pattern between destinations takes part the probability of travelling domestically only remains constant whereas the probability of travelling abroad keeps growing additionally the article prov

social mobility and redistributive politics just like economists voters have conflicting views about redistributive taxation because they estimate its incentive costs differently we model rational agents as trying to learn from their dynastic income mobility experience the relative importance of effort and predetermined factors in the generation of income inequality and therefore the magnitude of these incentive costs in the long run left wing dynasties believing less in individual effort and voting for more redistribution coexist with right wing dynasties this allows us to explain why individual mobility experience and not only current income matters for political attiitudes and how persistent differences in perceptions about social mobility can generate persistent differences in redistribution across countries

self fulfilling beliefs about social status abstract human beings care a lot about being viewed as smart this paper defines social status as the public beliefs about one s smartness inferred from one s publicly observed social mobility experience this status motive can easily generate multiple equilibria based upon self fulfilling beliefs it also tends to amplify the inequality of economic success between agents with different social origins this theory of persistent inequality is compared with other theories of inequality based upon self fulfilling beliefs such as the model of statistical discrimination and the model of learning about one s chances of mobility in the absence of a status motive as well the sociological theories of merton boudon and bourdieu

asymmetric tournaments equal opportunity laws and affirmative action some experimental results this paper assesses whether affirmative action programs and equal opportunity laws affect the output of economic agents more precisely we find that equal opportunity laws and affirmative action programs always benefit disadvantaged groups equal opportunity laws also increase the effort levels of all subjects and hence the profits of the tournament administrator usually the firm the effects of affirmative action programs depend on the severity of a group s cost disadvantage when the cost disadvantage is severe these programs significantly increase effort levels and hence profits the opposite is true when the disadvantage is slight

asymmetric changes in stock prices and investor recognition around revisions to the s p 500 index this study finds that first time additions to the sp however companies upgraded from lesser known s p indices reentering the s p 500 or dropped from the index experience temporary price changes these price patterns can be explained by changes in investor recognition

affirmative action and labor markets affirmative action remains controversial the controversy extends from the original antidiscrimination legislation and its interpretation to estimates of affirmative action s effect on the labor market this paper provides a progress report on our recent efforts at detecting the effects of affirmative action on minority wages and employment although we find a substantial increase in wages for black men and black women over our sample period the timing of these wage changes is surprising most of the wage gains came prior to 1974 before the establishment of an effective monitoring structure for affirmative action indeed when the powers of the eeoc and ofcc are greatest the wage effects for young blacks are somewhat perverse using eeo 1 reports we find a major shift in black employment toward firms most vulnerable to the monitoring and potential sanctions of the affirmative action programs as with wages the shift in minority employment came prior to the expansion of the powers and budgets of the ee

choosing the right pond social approval and occupational choice we model the endogenous emergence of social perceptions about occupations and their impact on occupational choice in particular an individual s social approval increases with his community s perception of his skill in his chosen career these perceptions vary across communities because individuals better assess the skill of those in occupations similar to their own such imperfect assessment can distort choices away from comparative advantage when skill distributions differ across occupations and or correlate positively the community perceives one occupation more favorably this favored sector experiences overcrowding but misallocation occurs across both sectors furthermore a positive skill correlation can produce multiple steady states

will affirmative action policies eliminate negative stereotypes a key question concerning affirmative action is whether the labor market gains it brings to minorities can continue without it becoming a permanent fixture in the labor market the authors argue that this depends on how the policy affects employers beliefs about the productivity of minority workers they study the joint determination of employer beliefs and worker productivity in a model of statistical discrimination in job assignments the authors prove that even when identifiable groups are equally endowed ex ante affirmative action can bring about a situation in which employers correctly perceive the groups to be unequally productive ex post copyright 1993 by american economic association

belief in a just world and redistributive politics international surveys reveal wide differences between the views held in different countries concerning the causes of wealth or poverty and the extent to which people are responsible for their own fate at the same time social ethnographies and experiments by psychologists demonstrate individuals recurrent struggle with cognitive dissonance as they seek to maintain and pass on to their children a view of the world where effort ultimately pays off and everyone gets their just deserts this paper offers a model that helps explain i why most people feel such a need to believe in a just world ii why this need and therefore the prevalence of the belief varies considerably across countries iii the implications of this phenomenon for international differences in political ideology levels of redistribution labor supply aggregate income and popular perceptions of the poor the model shows in particular how complementarities arise endogenously between individuals desired beliefs or ideological choices resulting in two equilibria a first american equilibrium is characterized by a high prevalence of just world beliefs among the population and relatively laissez faire policies the other european equilibrium is characterized by more pessimism about the role of effort in economic outcomes and a more extensive welfare state more generally the paper develops a theory of collective beliefs and motivated cognitions including those concerning money consumption and happiness as well as religion

the impact of global equity offerings this article examines the impact of u s firms issuing equity in multiple markets we compare the stock price reactions to announcements of global equity offers to a control group of issues offered exclusively in the domestic u s market all else equal the adverse price reaction that typically accompanies equity issuance is reduced by 0 8 percent when some shares are sold abroad the overall evidence suggests global offers are effective in expanding demand and reducing the price pressure effects associated with share issuance the benefits of global offers appear to be associated with an increase in the number of foreign shareholders the search for new capital markets and lower costs of capital is an ongoing search for most firms in recent years the number of u s firms issuing common equity in international markets has increased significantly in 1985 u s firms raised 89 million through follow on equity offers in foreign markets and this amount increased to 18 915 million in 1995 a greater than 200 fold increase in nominal terms this paper focuses on follow on global equity issues by u s firms and attempts to assess why firms widely acknowledged to have access to broad and deep domestic capital markets increasingly seek to raise equity abroad the global equity offerings we examine involve a simultaneous sale of common equity at the same offer price in the u s market and one or more international markets we examine the characteristics of the issuers and issues and investigate to what extent the wider distribution of shares affects the pricing and costs of these issues our main line of inquiry examines whether the distribution of shares to multiple markets results in a higher offer price for equity shares than would be obtained had the shares been sold exclusively in the u s market domes

combining revealed and stated preference data to estimate the nonmarket value of ecological services an assessment of the state of the science this paper reviews the marketing transportation and environmental economics literature on the joint estimation of revealed preference rp and stated preference sp data the rp and sp approaches are first described with a focus on the strengths and weaknesses of each recognizing these strengths and weaknesses the potential gains from combining data are described a classification system for combined data that emphasizes the type of data combination and the econometric models used is proposed a methodological review of the literature is pursued based on this classification system examples from the environmental economics literature are highlighted a discussion of the advantages and disadvantages of each type of jointly estimated model is then presented suggestions for future research in particular opportunities for application of these models to environmental quality valuation are presented

estimation of residential electricity demand function in seoul by correction for sample selection bias abstract this paper attempts to estimate the residential electricity demand function in seoul to this end we collected the data from a survey of households in seoul and employed the bivariate model to rectify the undesirable impacts of non response data the results show that the size of family the size of house dummy for having a plasma display panel television dummy for having an air conditioner and the household s income have positive relationships with the residential electricity demand on the other hand electricity price contributes negatively to the residential electricity demand in addition the price and income elasticities were estimated as 0 2463 and 0 0593 respectively implying that residential electricity demand in seoul is price and income inelastic such useful information is expected to help policy makers regulate the residential electricity supply and predict the effect of the price on the residential electricity demand in the future

imputing a continuous income variable from grouped and missing income observations abstract most cross sectional data sets collect income in a discrete number of categories that is in grouped form to simplify the respondent s task and to encourage a response in spite of such grouped data collection many respondents refuse to provide information on income this paper develops a method to impute a continuous and reliable value for income from grouped and missing income data

liquidity premia in dynamic bargaining markets abstract this paper develops a search theoretic model of the cross sectional distribution of asset returns abstracting from risk premia and focusing exclusively on liquidity in contrast with much of the transaction cost literature it is not assumed that different assets carry different exogenously specified trading costs instead different expected returns due to liquidity are explained by the cross sectional variation in tradeable shares the qualitative predictions of the model are consistent with much of the empirical evidence

market microstructure and securities values evidence from the tel aviv stock exchange abstract this paper examines the value effects of improvements in the trading mechanism selected stocks on the tel aviv stock exchange were transferred gradually from a daily call auction to a mechanism where the call auction was followed by iterated continuous trading sessions this event was associated with a positive and permanent price appreciation the cumulative average market adjusted return over a period that started five days prior to the announcement and ended 30 days after the stocks started trading by the new method was approximately 5 5 in addition we find positive liquidity externalities spillovers across related stocks and improvements in the value discovery process due to the improved trading method finally there was a positive association between liquidity gains and price appreciation

global and local information asymmetries illiquidity and sec rule 144a regulation s the case of indian gdrs abstract between 1992 and 1997 indian firms were the most frequent issuers of equity backed global depositary receipts gdrs governed by the sec s rule 144a and regulation s they also accounted for the highest dollar volume home market stock price responses to these issues are consistent with the hypotheses that gdrs enable firms to resolve two forms of information asymmetry 1 an asymmetry between issuing firms and international investors that results from market segmentation and 2 an asymmetry between indian firms and home market investors that resembles asymmetries that help explain abnormal returns in equity private placements by us firms our evidence suggests that gdr issuance can increase investors recognition of underlying shares even if there are no liquidity enhancements and even if disclosure requirements are not as demanding as those imposed on foreign firms whose depositary receipts trade in public us markets

imputing a continuous income variable from a bracketed income variable with special attention to missing observations abstract this paper proposes a method based on polychotomous discrete choice methods to impute a continuous measure of income when only a bracketed measure of income is available and for only a subset of the obsevations the method is shown to perform well with cp5 data

the only game in town stock price consequences of local bias abstract theory suggests that in the presence of local bias the price of a stock should be decreasing in the ratio of the aggregate book value of firms in its region to the aggregate risk tolerance of investors in its region using data on u s states and census regions we find clear cut support for this proposition most of the variation in the ratio of interest comes from differences across regions in aggregate book value per capita regions with low population density e g the deep south are home to relatively few firms per capita which leads to higher stock prices via an only game in town effect

the enforcement of equal opportunity laws under imperfect information affirmative action and alternatives more than twenty years have passed since the enactment of the civil rights act during that period the enforcement of title vii with its broad prohibition of discrimination in employment and compensation has proved to be both difficult and controversial as part of any attempt to regulate economic activity we must be able to observe violations but unequal treatment in employment relationships is difficult to identify employers must always differentiate between individuals when making hiring and promotion decisions since applicants possess diverse skills and abilities this diversity creates a fundamental problem in monitoring the compliance or noncompliance of employers with equal opportunity laws this paper examines the enforcement of equal opportunity laws in a labor market that exhibits statistical discrimination this type of discrimination may arise as a rational response by profitmaximizing firms to imperfect information about individual productivity in lundberg and startz 1983 an equal opportunity policy prohibiting raceor sex specific wage schedules was shown to be an efficiency enhancing response to statistical discrimination section ii extends this model to allow information a role in allocating heterogeneous workers among jobs in this environment restricting firms use of information through an equal opportunity policy improves workers incentives to acquire human capital at the expense of production losses and its net effect on efficiency becomes ambiguous firms will attempt to evade an equal opportunity law presenting the government and the courts with the task of monitoring and enforcing compliance the regulators are likely to possess imperfect information not only about the relationship between worker characteristics and productivity but also about the actual personnel policies followed by firms in section iii a simple costminimizing evasion policy for firms in which other worker attributes are used as imperfect proxies for race or sex is outlined in the next two sections alternative policies for enforcing compliance

job discrimination market forces and the invisibility hypothesis the invisibility hypothesis holds that the job skills of disadvantaged workers are not easily discovered by potential new employers but that promotion enhances visibility and alleviates this problem then at a competitive labor market equilibrium firms profit by hiding talented disadvantaged workers in low level jobs consequently those workers are paid less on average and promoted less often than others with the same education and ability as a result of the inefficient and discriminatory wage and promotion policies disadvantaged workers experience lower returns to investments in human capital than other workers

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

the effect of market segmentation and illiquidity on asset prices evidence from exchange listings this article documents the effect on share value of listing on the new york stock exchange and reports the results of a joint test of merton s 1987 investor recognition factor and amihud and mendelson s 1986 liquidity factor as explanations of the change in share value we find that during the 1980s stocks earned abnormal returns of 5 percent in response to the listing announcement and that listing is associated with an increase in the number of shareholders and a reduction in bid ask spreads cross sectional regressions provide support for both investor recognition and liquidity as sources of value from exchange listing the effect on share value of listing on the new york stock exchange nyse by over the counter otc stocks has been the focus of empirical investigation by scholars and practitioners for at least 50 years the consensus conclusion is that an nyse listing is or at least has been associated with a significant increase in share price streetlore has historically attributed this increase in value to the increased investor recognition that is believed to accompany listing on a major exchange until recently this investor recognition explanation has lacked a rigorous analytical foundation merton 1987 fills this void with a model of capital market equilibrium with incomplete information to develop his model merton adopts most of the assumptions of the original sharpe lintner mossin capital asset pricing model capm but relaxes the assumption of equal information across investors he further assumes that investors invest only in the those securities of which they are aware 2 with this modification to the original capm framework merton derives a model in which expected returns increase with systematic risk firm specific risk and relative market value and decrease

the geography of equity listing why do companies list abroad this paper documents aggregate trends in the foreign listings of companies and analyzes their distinctive prelisting characteristics and postlisting performance in 1986 1997 many european companies listed abroad mainly on u s exchanges while the number of u s companies listed in europe decreased european companies that cross list tend to be large and recently privatized firms and expand their foreign sales after listing abroad they differ sharply depending on where they cross list the u s exchanges attract high tech and export oriented companies that expand rapidly without significant leveraging companies cross listing within europe do not grow unusually fast and increase their leverage after cross listing foreign listings are becoming an increasingly important strategic issue for companies and stock exchanges alike as companies become global in their product market and investment strategies direct access to foreign capital markets via an equity listing can yield important benefits at the same time the international integration of capital markets has led to unprecedented levels of competition among stock exchanges in this competitive struggle the winners are the exchanges that manage to attract more foreign listings and the attendant trading volume and business opportunities despite the importance of these issues still little is known about which exchanges succeed in capturing more listings from abroad and why this question is intimately related to a second issue namely which advantages companies expect to get from a foreign listing securing cheap equity capital for new investment allowing controlling shareholders to divest on a liquid market preparing for foreign acquisitions or simply enhancing the compa

customer discrimination and affirmative action i introduction beginning with the work of becker 1957 economists have been concerned with the relationship between competitive market forces and the persistence of labor market discrimination 1 a major insight of becker and the literature that followed is that competition could tend to eliminate discriminatory pay differentials if competitive forces do eliminate discrimination then empirical findings of persistent discrimination are either a result of faulty testing or market imperfections economic analysis of the link between competition and discrimination depends on the origins of prejudice becker identified at least three possible sources employers co workers and consumers 2 in each of these instances the group against which prejudice is directed e g women or minorities which will be termed minorities in this paper may be able to escape discrimination first minorities can work for nondiscriminatory employers if there are any moreover stiglitz 1973 shows that with constant returns to scale such employers will take over markets from the discriminators eliminating any pay gap based on prejudice 3 second if there is co worker prejudice then minorities can work in segregated firms which under constant returns to scale may have a cost advantage over integrated or all majority firms again discrimination will be driven away 4 third minorities can theoretically escape customer discrimination by specializing in the production of goods for which there is no contact between producers and consumers a case discussed by cain 1986 while competitive forces may in some cases erode discriminatory wage differentials the rate of decline of race and sex wage differentials has evidently not been rapid enough in the eyes of policymakers u s anti discrimination policy has been guided by two major vehicles title vii of the 1964 civil rights act and the office of federal contract compliance programs ofccp 5 the equal employment opportunity commission eeoc was created to enforce title vii and is empowered to aid plaintiffs or bring suit itself against employers the commission monitors the employment practices of federal contractors not only are contractors barred from discrimination against protected groups these firms are also required to take affirmative action not to discriminate the purpose of this paper is twofold first it demonstrates that in a general equilibrium framework the case of customer discrimination is theoretically distinct from employer or co worker prejudice in particular while constant returns to scale and the existence of nondiscriminatory firms can eliminate the latter two forms of discrimination customer discrimination may persist even under such conditions the persistence of discriminatory wage differentials is shown to depend on consumer demand technology and the relative size of the minority labor force 6 second the general equilibrium framework is then used to evaluate the impact of government anti discrimination policy where customers are the source of discrimination it is shown that if the government requires equal pay and proportional representation for minorities then the resulting allocation of resources will under particular assumptions be the same as if customers did not discriminate i then contrast these theoretical results with the predicted general equilibrium impact of affirmative action when there is employer or co worker prejudice among previous general equilibrium models of affirmative action welch 1976 assumed no discrimination while freeman 1978 did not specify the source of discrimination it is shown here that the source of prejudice markedly affects one s conclusions about affirmative action further even in some cases where segregation has eliminated discriminatory wage differentials the introduction of affirmative action has allocative effects finally evidence from studies evaluating the impact of affirmative action is used to distinguish among the various equilibrium models

the effects of market segmentation and investor recognition on asset prices evidence from foreign stocks listing in the united states non u s firms cross listing shares on u s exchanges as american depositary receipts earn cumulative abnormal returns of 19 percent during the year before listing and an additional 1 20 percent during the listing week but incur a loss of 14 percent during the year following listing we show how these unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing our tests provide support for the market segmentation hypothesis and merton s 1987 investor recognition hypothesis the globalization of u s capital markets has accelerated dramatically in the past decade increasing numbers of companies from overseas have chosen to either raise capital through global equity issues or prepare for future capital raising by way of cross listings on u s exchanges as of 1997 about 1 300 non u s companies have listed their shares for trading on the new york stock exchange nyse the american exchange amex the national association of securities dealers automation quotation nasdaq system or

racism and redistribution in the united states a solution to the problem of american exceptionalism abstract the two main political parties in the united states in the period 1976 1992 put forth policies on redistribution and on issues pertaining directly to race we argue that redistributive politics in the us can be fully understood only by taking account of the interconnection between these issues in political competition we identify two mechanisms through which racism among american voters decreases the degree of redistribution that would otherwise obtain in common with others we suggest that voter racism decreases the degree of redistribution due to an anti solidarity effect that some voters oppose government transfer payments to minorities whom they view as undeserving we suggest a second effect as well that some voters who desire redistribution nevertheless vote for the anti redistributive republican party because its position on the race issue is more consonant with their own and this too decreases the degree of redistribution in political equilibrium this we name the policy bundle effect we propose a formal model of multi dimensional political competition that enables us to estimate the magnitude of these two effects and estimate the model for the period in question we compute that voter racism reduced the income tax rate by 11 18 points the total effect decomposes about equally into the two sub effects we also find that the democratic vote share is 5 38 points lower than it would have been absent racism the magnitude of this effect would seem to explain the difference between the sizes of the public sector in the us and northern european countries

heterogeneity social esteem and feasibility of collective action abstract in the presence of individual heterogeneity a major problem with egalitarian partnership such as complete income pooling is that individuals of comparatively high ability are induced to exit the arrangement this is nevertheless ignoring the possible impact of social esteem considerations based on a comparison of members performances in this paper drawing inspiration from pooling experiences in a japanese fishery we show that the exit problem can be surmounted if sensitivity to social esteem is neither too strong nor too weak if it is too strong the lower ability agents will exit out of social shame whereas if it is too weak the higher ability agents will not consider it worthwhile to transfer income to their partners when the arrangement is sustainable the lower ability people strive towards limiting the income gap

the price response to s p 500 index additions and deletions evidence of asymmetry and a new explanation we study the price effects of changes to the s p 500 index and document an asymmetric price response there is a permanent increase in the price of added firms but no permanent decline for deleted firms these results are at odds with extant explanations of the effects of index changes that imply a symmetric price response to additions and deletions a possible explanation for asymmetric price effects arises from the changes in investor awareness results from our empirical tests support the thesis that changes in investor awareness contribute to the asymmetric price effects of s p 500 index additions and deletions the long held assumption that stocks have perfect substitutes and the perfect elasticity of demand that follows from it is central to modern finance theory if securities have almost perfectly elastic demand then any supply or demand shocks that are devoid of information should have no effect on the prevailing price early empirical research on whether price changes occur in the absence of new information focused on block trades equity issues and stock splits but was unable to exclude information effects around these events since there is no obvious reason to believe ex ante that index changes contain new information they constitute a natural framework for testing whether stocks have almost perfectly elastic or horizontal demand curves a stock s excess return around such changes could be consistent with a downward sloping demand curve with the advent of indexed mutual funds in 1976 and the public announcement of s p index changes in the same year there is much evidence that such announcements are accompanied by an increase in price for firms added to the index if stocks have a short term downward sloping demand curve the price should be momentarily affected by a demand shock due to indexing but that effect

the payoff to work without pay volunteer work as an investment in human capital despite the widespread belief that volunteer work enhances an individual s employment prospects the hypothesis that volunteer work increases one s earnings has

the price of options illiquidity the purpose of this paper is to examine the effect of illiquidity on the value of currency options we use a unique dataset that allows us to explore this issue in special circumstances where options are issued by a central bank and are not traded prior to maturity the value of these options is compared to similar options traded on the exchange we find that the nontradable options are priced about 21 percent less than the exchange traded options this gap cannot be arbitraged away due to transactions costs and the risk that the exchange rate will change during the bidding process

international financial integration through equity markets which firms from which countries go global the authors study international financial integration analyzing firms from various countries raising capital trading equity and cross listing in major world stock markets using a large sample of 39 517 firms from 111 countries covering the period 1989 2000 they find that although international financial integration increases substantially over this period only relatively few countries and firms actively participate in international markets firms more likely to internationalize are from larger and more open economies with higher income better macroeconomic policies and worse institutional environments these firms tend to be larger grow faster and have higher returns and more foreign sales while changes occur with internationalization these firm attributes are present before internationalization takes place the results suggest that international financial integration will likely remain constrained by country and firm characteristics

the share price puzzle we document substantial variation in the prices of common stocks in u s markets due to firms selecting particular price ranges for their shares cross sectional evidence indicates that variables consistent with merton s model of capital market equilibrium explain roughly two thirds of this variation in share prices in addition measures of trading range and share price appreciation predict stock splits and the investor base of firms that split their stock increases compared to other firms we conclude that firms manage share price levels to increase the value of the firm

biased screening and discrimination in the labor market the traditional economic analysis of discrimination is based on gary becker s study of taste discrimination by employers employees and consumers more recent work by kenneth arrow 1972 1973 has attempted to interpret intergroup wage differences in an alternative framework as a rational reaction to uncertainty in labor markets his model of statistical discrimination demonstrates that when the screening process used to determine a worker s qualifications is costly and prior expectations of productivity differ across race or sex groups then wage differentials may arise between workers of identical productivity by implicitly assuming a perfect screening process arrow ignores a potentially important source of wage differentials namely the fact that the screening process might be a more reliable predictor of productivity for one group than for another our paper generalizes the arrow model in two ways first in contrast to arrow we assume that all groups have identical distributions of productivity secondly the screening process used by the firm to determine an applicant s productivity is biased in the sense that a members of various groups may pass the test in different proportions despite their identical productivity distributions and b the predictive power of the test might vary across groups our objective is to analyze the effects of these types of biases in the screening process on the wage differentials between different population groups

the rise and fall of the amex emerging company marketplace abstract in 1992 the amex launched the emerging company marketplace ecm to trade the stocks of small but growing companies bid ask spreads decreased dramatically for listing firms and news coverage increased executives of listing firms were quite satisfied yet few firms chose to list on the ecm and it closed in 1995 what went wrong most amex stakeholders had little to gain from the success of the ecm and a series of scandals damaged the reputation of the exchange similar small firm markets have also failed largely because successful firms quickly depart for traditional markets leaving only unsuccessful firms behind

gender and job performance evidence from wall street this study concerns the relationship between gender and job performance among brokerage firm equity analysts women s representation in analyst positions dropped from 16 percent in 1995 to 14 percent in 2005 the study found significant gender based differences in performance on various dimensions for example women cover roughly 9 stocks on average as compared with 10 for men and women s earnings estimates tend to be less accurate than men s estimates but the study also found that women are significantly more likely than men to be designated as all stars which indicates that they outperform men in other aspects of job performance

microstructure and ambiguity a goal for stock exchanges is to increase participation by firms and investors we show how specific features of the microstructure can reduce perceived ambiguity and induce participation by both investors and issuers we develop a model with sophisticated traders who we view as expected utility maximizers with rational expectations and unsophisticated traders who we view as rational traders facing ambiguity about the payoffs to participating in the market we show how designing markets to reduce ambiguity can benefit investors through greater liquidity exchanges through greater volume and issuing firms through a lower cost of capital

trade credit in zimbabwean manufacturing abstract credit from suppliers is an important but often neglected source of finance for manufacturing firms zimbabwe is no exception unlike credit from financial institutions trade credit does not rely on formal collateral but on trust and reputation contract enforcement is flexible network effects and statistical discrimination affect the screening of trade credit applicants black entrepreneurs are disadvantaged by their lack of business contacts and by the difficulty of distinguishing themselves from the mass of financially insecure and short lived african owned businesses in zimbabwe a vicious circle is created between weak financial base unreliability as a debtor and inability to gain access to credit