the relative yields on taxable and tax exempt debt a valuation model for corporate tax liabilities is developed and used to derive a relationship for the relative yields of taxable and tax exempt debt the model incorporates both the incomplete tax loss offset of the u s corporate tax code and the resulting probabilistic marginal tax rate the relationship is then tested using regression analysis the results are both positive and strong copyright 1986 by ohio state university press

taxes on tax exempt bonds implicit tax rates priced in the cross section of municipal bonds are approximately two to three times as high as statutory income tax rates with implicit tax rates close to 100 using retail trades and above 70 for interdealer trades these implied tax rates can be identified because a portion of secondary market municipal bond trades involves income taxes after valuing the tax payments market discount bonds which carry income tax liabilities trade at yields around 25 basis points higher than com parable municipal bonds not subject to any taxes the high sensitivities of municipal bond prices to tax rates can be traced to individual retail traders dominating dealers and other institutions the issue of how taxes affect asset prices is an important issue in finance accounting and economics in theoretical models examining the effect of taxes

net buyers net sellers and agricultural landowner support for agricultural zoning agricultural zoning and land use restrictions are long standing approaches for controlling non agricultural development we provide a theoretical explanation for variation in agricultural landowner support for zoning based on landowners positions whether a landowner is a buyer or a seller in the land market hypotheses derived from the model are tested using data from a survey of agricultural landowners in kent county michigan the empirical findings are consistent with our hypothesis that net buyers and net sellers of agricultural land will differ in their support for agricultural zoning

parallel imports and the pricing of pharmaceutical products evidence from the european union we consider policy issues regarding parallel imports pis of brand name pharmaceuticals in the european union where such trade is permitted we develop a simple model in which an original manufacturer competes in its home market with pi firms the model suggests that for small trade costs the original manufacturer will accommodate the import decisions of parallel traders and that the price in the home market falls as the volume of parallel imports rises using data from sweden we find that the prices of drugs subject to competition from parallel imports fell relative to other drugs over the period 1994 1999 econometric analysis finds that parallel imports significantly reduced manufacturing prices by 12 19 there is evidence that this effect increases with multiple pi entrants

does the minimum lot size program affect farmland values empirical evidence using administrative data and regression discontinuity design in taiwan this study empirically assesses the causal effect of the minimum lot size program on farmland values in taiwan a unique dataset of 4 032 parcels of farmland drawn from administrative foreclosure auction profiles between 2000 and 2008 and regression discontinuity design were applied to cope with the endogeneity issue of land use regulations the results of the parametric and nonparametric estimations indicate that the minimum lot size program significantly increases farmland value by approximately 18 and 15 respectively moreover the program effect is more pronounced for farmland located in urban suburban areas in the absence of a tax effect and externality resulting from non agricultural activities the significant program effect on farmland values is likely to result from the effect of the program on farmland s option value for future development

sales growth of new pharmaceuticals across the globe the role of regulatory regimes prior marketing literature has overlooked the role of regulatory regimes in explaining international sales growth of new products this paper addresses this gap in the context of new pharmaceuticals 15 new molecules in 34 countries and sheds light on the effects of regulatory regimes on new drug sales across the globe based on a time varying coefficient model we find that differences in regulation substantially contribute to cross country variation in sales one of the regulatory constraints investigated i e manufacturer price controls has a positive effect on drug sales the other forms of regulation such as restrictions of physician prescription budgets and the prohibition of direct to consumer advertising dtca tend to hurt sales the effect of manufacturer price controls is similar for newly launched and mature drugs by contrast regulations on physician prescription budgets and dtca have a differential effect for newly launched and mature drugs whereas the former hurts mature drugs more the latter has a larger effect on newly launched drugs in addition to these regulatory effects we find that national culture economic wealth and lagged sales also affect drug sales our findings may be used as input by managers for international launch and marketing decisions they may also be used by public policy administrators to assess the role of regulatory regimes in pharmaceutical sales growth

addressing the issues that arise in analysing multicentre cost data with application to a multinational study differences in the mean spread and skewness of cost data collected from different countries present problems for analysis and interpretation here we develop generalised linear multilevel models to estimate the effects of patient and national characteristics on costs using gamma distributions and multiplicative effects for patient characteristics fitted the data better than models which assumed normal distributions or estimated additive effects a multilevel gamma model is employed to allow for heterogeneity in the effects of patient case mix across centres analysis of multinational cost data must recognise differences in mean spread and skewness across centres as well as the data s hierarchical structure

equality efficiency and market fundamentals the dynamics of international medical care reform public opinion surveys uniformly show low support for medical care systems in developed countries the longstanding conflict between equal access to care and efficient service provision partly explains this dissatisfaction but the trade off is particularly acute in medical care as new technologies developed over time have increased the cost of care and made the equity commitment even more expensive countries first dealt with rising costs by maintaining equal access and restricting total spending efficiency suffered however as a result many countries are considering a move away from spending controls and toward incentive based medical care reform

the value of water as an urban club good a matching approach to community provided lakes abstract community provided urban lakes located in arid environments provide significant amenities to residents but require large quantities of water to maintain lake levels we use matching techniques to recover the average capitalized value of lakes above the costs of maintenance by comparing transactions in lake communities to observationally similar transactions in surrounding communities we differentiate between adjacent and non adjacent houses to recover heterogeneous treatment effects and allow estimates to vary across communities importantly we consider the role of imperfect matching on spatially and temporally varying unobservable variables in our choice of estimator and the appropriate set of potential control properties our results suggest that the capitalized value of lakes is heterogeneous with a mean estimate of 6500 an acre foot our results provide estimates of the changes in water prices that would make this form of development unprofitable illustrating the linkage between water pricing policy and the water intensity of development

cross national price differences for pharmaceuticals how large and why bilateral drug price and quantity indexes based on comprehensive data for seven countries us canada france germany italy japan and the uk refute the conventional wisdom that us drug prices are much higher than elsewhere for laspeyres us weighted indexes previous drug price comparisons are biased by unrepresentative samples and unweighted indexes quasi hedonic regression shows that cross national price differences reflect differences in product characteristics and in their implicit prices which reflect the regulatory regime strict price regulation systematically lowers prices for older molecules and globally diffused molecules generic competition lowers prices in less regulated regimes which also have more price elastic demand

the pricing of short term debt and the miller hypothesis a note in 1977 miller 2 challenged conventional wisdom concerning the gain from corporate leverage introducing an equilibrium model of the municipal and corporate debt markets and arguing that the effective personal tax rate on equity is negligible miller concluded that the relevant marginal tax rate operating across the two markets would be the corporate rate and as a result the marginal value of the tax shield to an individual firm would be zero the purpose of this paper is to present additional evidence regarding implied marginal tax rates on interest income taxable and tax free money market funds are compared making it possible to avoid difficulties in previous studies involving long term bond yields the results support the miller hypothesis when these short term rates are compared when there is little term structure impact and when risk differences are small observed returns on taxable and tax free investments imply a tax rate almost exactly equal to the corporate rate

riparian buffers and hedonic prices a quasi experimental analysis of residential property values in the neuse river basin riparian buffers the strips of vegetation along banks of rivers and streams have been proposed as a key instrument to protect water quality in the united states riparian buffers impose a restriction on the use of private property limiting harvest and development but buffers can also provide for aesthetic and recreational benefits that may accrue to property owners with data from the neuse river basin in north carolina this study attempts to provide empirical evidence on the effect of a mandatory buffer rule on the value of riparian properties spatial autoregressive hedonic models are estimated within a quasi experimental framework using the imposition of the buffer rule as the treatment and nonriparian properties as a control group results indicate that a riparian property generally commands a high premium we find no evidence however that the mandatory buffer rule has had a significant impact on riparian property values when compared with the control group copyright 2009 oxford university press

pharmaceutical price controls and entry strategies abstract this paper finds that the use of price controls has a statistically and quantitatively important effect on the extent and timing of the launch of new drugs firms headquartered in countries that regulate price reach fewer markets than those in countries without price controls companies avoid price controlled markets and are less likely to introduce products in additional markets after entering a price controlled country launches into low price european countries are further delayed following legalization of parallel imports the results suggest that price regulation in one country affects entry into other countries and may affect the strategies of domestic firms

farmland retention techniques property rights implications and comparative evaluation a conceptual framework distinguishes farmland retention institutions and with a survey of various literatures interviews and original policy design classifies 28 techniques in four types regulatory incentive based governmental participatory and hybrid the analysis reveals that techniques often perceived to be incentive based such as pdr pace and tdr are better understood as participatory and hybrid techniques respectively likely fiscal impacts stakeholder acceptability and implementation challenges are assessed the framework suggests that when governments select multiple techniques attention should be paid to the implied allocation of property rights to maintain coherent land use policy and minimize property rights conflicts

the market effects of zoning undeveloped land does zoning follow the market through restricting the uses of land zoning gives local governments the power to modify the dictates of unconstrained land markets many believe however that the regulations tend to coincide with or anticipate the market solution rather than modify it the validity of this assertion is an empirical question and has not yet been adequately addressed the purpose of this paper is to develop and apply an empirical test of the null hypothesis that zoning follows the market the null hypothesis can be rejected only if land uses under zoning differ from what they would be without zoning the first task in deriving the test is to differentiate between constrained and unconstrained land market allocations it is shown that parameter estimates for hedonic price functions when markets are zoned cannot be interpreted to imply that the regulations constrain market prices it is also shown that sample selection bias is a likely source of specification error in estimating hedonic price functions for zoned land markets since the sample selection of parcels to zone designations is unlikely to be random the selection process must be accounted for in ordinary least squares ols estimation of zone constrained hedonic price functions fortunately the correction for the specification error also provides a test for the market effects of zoning a bid price interpretation of hedonic price functions for land is presented in section ii the sample selection bias issues are also discussed in that section and a formal test for the market effects of zoning is introduced

pharmaceutical pricing in a regulated market we compare how new pharmaceuticals are priced in the price regulated swedish market with how they are priced in the u s market as studied by lu and comanor 1998 we collect a data set consisting of all new chemical entities nces launched in sweden between 1987 and 1997 and test the same models as lu and comanor in line with their results we find that introductory prices depend on the degree of therapeutic innovation contrary to the results from the u s market swedish real prices for nces fall substantially over time for all classes of therapeutic innovation also contrary to the findings of lu and comanor we find no effect of the presence of branded substitutes on either introduction prices or price dynamics our results indicate that the price regulation discourages price competition between brandname drugs

taxes default risk and yield spreads this paper develops a model of bond prices and yield spreads that incorporates the effect of both taxes and differences in default probabilities the tax loss consequences of default are recognized traditionally tax free municipal bond yields have been viewed as linearly related to taxable yields with a slope coefficient equal to one minus the tax rate and the intercept representing differences in default risk while our model supports the linearity assumption it implies that the slope and intercept are both functions of both the break even tax rate and the default probability ies clientele effects among both municipal and taxable bonds are demonstrated finally the implied marginal tax rates and the implied default probabilities are estimated for different categories of municipal bonds students of financial markets cannot help but be impressed by the number of new financial instruments that have been introduced successfully in recent years the fixed income market has been particularly innovative as bonds carrying a whole host of specific features have been successfully marketed bonds with small or zero coupons variable coupon rates or detachable warrants are three examples from among an expanding list of such features not surprisingly there has developed a large and expanding literature attempting to explain the rate spreads between different fixed income securities this literature has evolved much as one would expect early empirical work was in general not well founded in theory and was not based on an underlying expected return price model later empirical research has tended to be more careful in its specification of factors affecting yield spreads and as a consequence better founded in valuation

characteristics of demand for pharmaceutical products an examination of four cephalosporins we model demand for four cephalosporins and compute own and cross price elasticities between branded and generic versions of the four drugs we model demand as a multistage budgeting problem and we argue that such a model is appropriate to the multistage nature of the purchase of pharmaceutical products in particular the prescribing and dispensing stages we find quite high elasticities between generic substitutes and also significant elasticities between some therapeutic substitutes

land values in a newly zoned city the introduction of a new zoning ordinance to chicago in 1923 offers a natural experiment that allows us to determine the effects of zoning on relative land value growth rates policymakers claimed at the time that land use zoning would raise aggregate land values by reducing negative externalities associated with mixed land use after controlling for initial land use and the endogeneity of zoning decisions we find that residential zoning led to higher land value growth rates than commercial zoning

the generics paradox revisited empirical evidence from regulated markets earlier studies have pointed at the presence of a generics paradox in the us prescription drug market this article tests whether the generics paradox also holds in the presence of pricing and reimbursement regulation in six european prescription drug markets using proprietary pricing and market share data the results of panel data analysis suggest that the generics paradox also holds in these markets neither generic entry nor generic market penetration affect prices of originator drugs downwards and prices of originator drugs actually increase post generic entry

marginal tax rates evidence from nontaxable corporate bonds a note this study offers an alternative method of calculating marginal personal tax rates through the pairing of nontaxable industrial development and pollution control and taxable corporate bonds this procedure is shown to produce matched bond pairs that are comparable two hundred pairs of bonds are examined from the second quarter of 1973 through the second quarter of 1983 testing of the marginal tax rate relationships indicates that the marginal personal tax rate is less than the corporate statutory tax rate the examination of the relative pricing of taxable and nontaxable bonds provides an estimate of the marginal tax rates of bondholders who are indifferent between taxable and nontaxable bonds see for example gordon and malkiel 1 trczinka 6 and skelton 4 typically these implied marginal tax rates are calculated by comparing yield indices of taxable corporate bonds and nontaxable municipal bonds a potential problem with this method pointed out by trczinka 6 is that municipal and corporate bonds may not be of the same risk requiring some adjustment in the calculation another problem with this method is that the bond yield indices are computed from a sample of outstanding bonds introducing a potential yield to maturity bias associated with discount bonds skelton 4 an alternative procedure for calculating implied marginal tax rates is employed in this paper which avoids the problems of differential risks and the potential yield to maturity bias for discount bonds implied tax rates are calculated from pairs of newly issued bonds where each pair consists of one nontaxable corporate bond a tax exempt industrial development or pollution control bond and one taxable corporate bond 1 since only newly issued bonds are used in the computations the bias associated with capital gains and losses is avoided this study is organized into the following sections section i describes the data and the collection procedure the resultant implied marginal rates are presented in section ii summarizing and concluding remarks are provided in section iii

a textbook example of international price discrimination we show that books for general audiences are similarly priced internationally but textbooks are substantially more expensive in the united states we argue that cost factors cannot explain this phenomenon and discuss several demand side explanations

term structure effects on default risk premia and the relationship of default risky tax exempt yields to risk free taxable yields a note abstract the behavior of the default risk premium on bonds has caught the attention of many researchers some researchers have analyzed how default risk premia may vary with maturity it has been suggested that default risk premia are independent of maturity however recent research by rodriguez 1988 shows this to not hold for nonpar taxable bonds this research shows that the shape of the underlying term structure affects default risk premia for even par bonds in a systematic way furthermore the maturity dependent variation in equilibrium tax rates has a strong impact upon default risk premia behavior where equilibrium tax rates are derived from comparisons of taxable and tax exempt bonds the inclusion of the shape of the underlying term structure also has very important implications for the relation between taxexempt yields and taxable yields the slope and intercept terms of the relation between taxexempt and taxable yields are clearly dependent upon maturity a fact which has not been recognized before

tiered co payments pricing and demand in reference price markets for pharmaceuticals health insurance companies curb price insensitive behavior and the moral hazard of insureds by means of cost sharing such as tiered co payments or reference pricing in drug markets this paper evaluates the effect of price limits below which drugs are exempt from co payments on prices and on demand first using a difference in differences estimation strategy we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand name drugs in the german reference price market second estimating a nested logit demand model we show that consumers appreciate co payment exempt drugs and calculate lower price elasticities for brand name drugs than for generics this explains the different price responses of brand name and generic drugs and shows that price related co payment tiers are an effective tool to steer demand to low priced drugs

price regulation and relative delays in generic drug adoption abstract increasing the adoption of generic drugs has the potential to improve static efficiency in a health system without harming pharmaceutical innovation however very little is known about the timing of generic adoption and diffusion no prior study has empirically examined the differential launch times of generics across a comprehensive set of markets or more specifically the delays in country specific adoption of generics relative to the first country of generic adoption drawing on data containing significant country and product variation across a lengthy time period 1999 2008 we use duration analysis to examine relative delays across countries in the adoption of generic drugs our results suggest that price regulation has a significant effect on reducing the time to launch of generics with faster adoption in higher priced markets the latter result is dependent on the degree of competition and the expected market size

capitalization of exclusive agricultural zoning into farmland prices development in agricultural areas coughlin et al 1981 this exclusive agricultural zoning differs from traditional rural zoning in that it limits development and is often strictly enforced economists have argued that conceptually agricultural zoning lowers land values by restricting non farm development and three recent empirical studies support the hypothesis knaap 1985 vaillancourt and monty 1985 nelson 1988 but in fact economic theory predicts both positive and negative price effects distributed differentially among farmland parcels depending on parcel characteristics the purpose of this research is to test the hypothesis that the price effect of exclusive agricultural zoning varies with the characteristics of parcel subject to the regulations the research results suggest that economists investigating the land price effects of zoning should use methodologies that distinguish between positive and negative price effects deriving from parcel characteristics

arbitrage across borders why itunes gift cards sell above face value on ebay i introduction firms that operate internationally often charge different prices for the same product in different countries these price differences may be due to cost differences exchange rate fluctuations and or price discrimination where firms set prices based on consumers willingness to pay for the product there is an extensive literature on international price differences but nearly all of this research has focused on physical goods where arbitrage the situation where someone buys the product from a low price country and resells it to someone in a high price country tends to be relatively costly because of transaction costs including search costs and transportation costs there have been no empirical papers in the economics literature thus far on the arbitrage of downloadable goods this paper looks at the case of itunes which sells downloadable music videos books ipad and iphone applications and other content worldwide and shows how the sale of itunes gift cards above face value on the auction website ebay is linked to the arbitrage of itunes products itunes which is operated by apple first started selling music downloads in 2003 and by 2008 it was the largest music retailer in the united states and the world 1 people typically purchase products from their own country specific itunes stores but not all content is available in all countries due in part to licensing restrictions and consumer preferences e g itunes does not sell music movies and tv shows in many countries prices also vary across countries as detailed in section iii of this paper one can easily switch to any other country s itunes store with just a few mouse clicks in particular the u s store would seem to be a natural focal point and it tends to have lower prices and a wider selection however in order to actually purchase something from the u s store one needs to have either a u s credit card or a u s itunes gift card available in denominations ranging from 10 to 100 in the primary market through apple and its authorized sellers such as wal mart and best buy as such it can be surmised that some individuals outside the united states may be willing to purchase itunes gift cards on ebay in order to gain access to the u s store it should be noted that itunes terms and conditions specify that the u s store s products are available only to buyers in the united states we can see the evidence for this through the sale of itunes gift cards on ebay nearly 200 itunes gift cards are sold daily on ebay about 10 of all gift cards and more than half of these itunes gift cards sell above face value a phenomenon that is unusual among gift cards after discussing some background information and related literature this paper examines more than 1 300 ebay transactions in february 2011 and finds that itunes gift cards targeted to international buyers which are often sent electronically are more likely to have higher prices controlling for seller reputation shipping charges and other variables this indicates that non u s buyers are willing to pay a premium for the gift cards because they are unable to obtain them otherwise information about the buyers countries allows us to see whether it is the u s store s greater product availability or its lower prices that buyers are interested in this paper addresses an important issue because of the rising popularity of the sales of downloadable content worldwide this market includes music videos books video games and applications the internet has also made it easier for buyers and sellers in different countries to find one another and in the case of digital products exchange goods if arbitrage is widespread firms may decide to either minimize price differences between countries stop selling in low price countries altogether or use the legal system or other methods to prevent arbitrage in terms of the big picture this issue has implications for social welfare copyright enforcement and international trade policies and governments in some countries may also be concerned if their citizens have access to goods that are banned

market segmentation and the term structure of municipal yields an issue of considerable controversy in recent years is whether segmentation exists in the municipal bond market the presence of market segmentation suggests that securities can be subdivided into distinct groups according to some characteristic and there exists a lack of substitution between these groups on the part of borrowers and or investors 1 4 8 hendershott and kidwell 4 for example found evidence that market segmentation affected yields between regionally and nationally marketed municipal bond issues others contend that the municipal bond market is relatively efficient and no permanent segmentation effects can exist 2 9 most recently campbell 2 examined possible segmentation resulting from the large acquisitions of municipal securities by commercial banks and found that bank demand for municipal securities had no significant influence on the yield spreads between municipal bonds which differed in default risk term to maturity and tax treatment this is consistent with the argument that the combination of progressive personal income tax rates and fixed corporate income tax rates induces corporations to issue an amount of debt such that the marginal investor in taxable and tax exempt securities pays taxes at the full corporate rate 9 if segmentation does not exist two peculiar features of the term structure of municipal yields cannot be fully explained for one municipal yields have almost always increased monotonically with maturity this is true both for market averages of similarly rated municipal securities and for reoffering yields on individual serial

was the tax exempt bond market inefficient or were future expected tax rates negative this paper shows that the sharp narrowing with maturity of the spread between taxable and tax exempt yields leaves room for tax arbitrage at times tax exempt forward rates have exceeded taxable forward rates at such times only expectations of higher taxes on treasury than on municipal bonds would eliminate profit opportunities the authors develop the idea of forward tax rates and compute forward tax rates for 1955 through 1984 they also outline tax arbitrage mechanisms involving private forward sale of long municipal bonds or the use of the municipal bond futures contract and show the potential profits the municipal yield curve has been upward sloping for the entire postwar period even at times when taxable yield curves were humped or downward sloping thus the spread in yields between taxable and tax free bonds narrows dramatically with increasing maturity this paper focuses on the term structure of the spread in yields between taxable and tax exempt bonds we show that the sharp narrowing of the spread with maturity leaves room for some apparently unexploited tax arbitrage at times the narrowing has been so dramatic that taxexempt forward rates have exceeded taxable forward rates in other words only expectations of negative future tax rates on treasury interest or the expectations of a reversal in the relative taxability of treasury and municipal bonds would eliminate profit opportunities this situation makes little sense if the markets are well arbitraged three theories of the relationship between the yields on taxable and taxexempt bonds have attracted attention 2 miller 8 asserts that the corporate tax rate determines the yield spread between taxable and tax exempt debt in the

relative risk in municipal and corporate debt the yields of municipal bonds and corporate bonds are often compared the ratios of municipal bond yields to corporate bond yields are thought by many to be indicative of the marginal tax bracket of the marginal holder of the bonds if for example the ratio is 60 the implication is that an investor in the fortypercent tax bracket will be indifferent between the fully taxed corporate and the fully tax exempt municipal this assumes that the two bonds are currently selling at par such comparisons have attracted increased attention since the publication of merton miller s seminal debt and taxes in this work miller indirectly suggests that the marginal tax bracket at work across tax exempt and taxable bonds is equal to the corporate tax rate while the ratio of yields seems to indicate that this is true for short term bonds the yields of long term taxexempts seem too high relative to long term taxables to confirm miller s hypothesis implicit in these comparisons and the conclusions drawn from them is the tenuous notion that the compared bonds are identical except for the taxability of the coupon for example some authors have questioned whether municipals and corporates are equally risky see trzcinka 1982 the purpose of this paper is to present preliminary evidence on the relative riskiness of the two classes of bonds

auction failures and the market for auction rate securities abstract the market for auction rate securities ars made headlines during the second week of february 2008 when auctions at which the bonds interest rates reset experienced a wave of failures contrary to headlines that attribute the failures to a frozen market or investors irrationality we find that 1 even at their height less than 50 of ars experienced auction failures 2 the likelihood of auction failure was directly related to the level of the bonds maximum auction rates 3 the implied market clearing yields of bonds with failed auctions were significantly above their maximum auction rates and 4 ars yields were generally higher than yields of various cash equivalent investment alternatives we infer that investors priced the possibility of auctions failures into ars yields and rationally declined to bid for bonds for which required market yields exceeded their maximum auction rates

presidential address issuers underwriter syndicates and aftermarket transparency i model strategic interaction among issuers underwriters retail investors and institutional investors when the secondary market has limited price transparency search costs for retail investors lead to price dispersion in the secondary market while the price for institutional investors is infinitely elastic because retail distribution capacity is assumed to be limited for each underwriter dealer bertrand competition breaks down in the primary market and new issues are underpriced in equilibrium syndicates emerge in which underwriters bid symmetrically with quantities allocated internally to efficiently utilize retail distribution capacity underwriters and dealers appear to compete vigorously for new security issues and yet also appear to earn high profits in this business what value are they generating that warrants high compensation are there obstacles that keep this value from flowing through to security issuers despite apparently fierce competition in the market for these financial services the model in this paper combines three elements a lack of price transparency in the secondary market limited retail distribution capacity and bertrand competition in the primary market dealer underwriters bid for new securities as bertrand competitors they then sell these securities in a secondary market with limited price transparency retail investors face costs of gathering price information while institutional investors who are frequent repeat customers do not this leads to price dispersion in the secondary market where some retail customers get attractive terms and others do not the rents that accrue to broker dealers who can sell to retail customers are limited by their distribution capacity this in turn limits their incentives to bid aggressively in the primary market in equilibrium they share the new issues through arrangements that resemble underwriter syndicates new issues are underpriced relative to average subsequent transactions prices the results illustrate how noncompetitive outcomes in the secondary market can lead to breakdowns in competition in the primary market and why issuers may have little to gain from improved price transparency while more transparency limits the rents dealers can extract from retail investors in the secondary market the lost rents are not absorbed by issuers mechanisms green is from the tepper school of business carnegie mellon university i would like to thank my long time colleagues and friends burton hollifield uday rajan and mike trick as well as the doctoral students in 47 724 for patiently listening to me think out loud about these issues roni israelov and bruce carlin provided helpful comments on an earlier draft

one way arbitrage foreign exchange and securities markets a note theorem in the case of traders with exogenous needs to acquire foreign currency recently deardorff 3 coitned the phrase one way arbitrage to describe the behavior of those traders and showed that it probably precludes round trip covered interest arbitrage from breaking even deardorff s analysis focuses on the conditions under which in the presence of transaction costs there would be both spot and forward transactions on the foreign exchange markets at equilibrium in this paper we extend the analysis to derive the conditions under which transactions would exist in both the home and foreign securities markets and we generalize the results to the case of transactions in all markets

the drug bargaining game pharmaceutical regulation in australia many countries including australia regulate the price consumers pay for pharmaceuticals in this paper the australian pharmaceutical benefits scheme pbs is modelled as a multi stage game played between the regulator and pharmaceutical firms conditions are derived under which vertically differentiated firms are regulated and a number of issues are discussed these include efficiency regulated firm profitability leakage and price discrimination an extension examines the introduction of new drugs and concludes that if all the benefits of a new drug are to be realised then existing agreements and transfers per unit subsidies need to be renegotiated

dealer intermediation and price behavior in the aftermarket for new bond issues municipal bonds trade in decentralized broker dealer markets and are underpriced when issued but unlike equities the average price rises slowly over several days newly issued municipal bonds have high levels of price dispersion and the average price rises because the mix of trade sizes changes over time while large trades occur close to the reoffering price small trades occur between the reoffering price to as much as 5 above the reoffering price using a mixed distribution model we quantify the losses uninformed traders or issuers give up to broker dealers

do agricultural land preservation programs reduce farmland loss evidence from a propensity score matching estimator more than 80 governmental entities concerned about sprawl open space and farmland have implemented purchase of development rights pdr programs preserving 2 23 million acres at a cost of 5 47 billion are pdr programs effective in slowing the rate and acres of farmland loss employing propensity score matching methods and a 50 year 269 county data set for six mid atlantic states we find empirical evidence that pdr programs have had a statistically significant effect on farmland loss having a pdr program decreases a county s rate of farmland loss by 40 to 55 and decreases farmland acres lost by 375 to 550 acres per year

does regulation drive out competition in pharmaceutical markets abstract most countries regulate pharmaceutical prices either directly or indirectly on the assumption that competition is at best weak in this industry this paper tests the hypothesis that regulation of manufacturer prices and retail pharmacy margins undermines price competition we use data from seven countries for 1992 to examine price competition between generic competitors different manufacturers of the same compound and therapeutic substitutes similar compounds under different regulatory regimes we find that price competition between generic competitors is significant in unregulated or less regulated markets united states united kingdom canada and germany but that regulation undermines generic competition in strict regulatory systems france italy and japan regulation of retail pharmacy further constrains competition in france germany and italy regulation thus undermines the potential for significant savings on off patent drugs which account for a large and growing share of drug

bond returns liquidity and missing data this paper examines holding period returns to constant duration portfolios of u s govern ment notes and bonds and measures the return premium generated by liquidity differences in bonds the approach compares constant duration portfolios constructed in two distinct ways one using only bonds issued in the most recent treasury auction one using all other bonds comparisons of the resulting series are made meaningful by choosing narrow du ration ranges in the portfolio formation procedure this in turn induces a missing data problem in the created time series parameters of return distributions are therefore estimated employing a maximum likelihood framework that explicitly accounts for the missing data it is estimated that recently issued bonds are priced to return a premium of around 55 basis points per annum over otherwise equivalent instruments

labor market discrimination against hispanic and black men h ispanic american men have lower average wage rates than white non hispanics in 1975 the average white non hispanic male wage earner in the united states earned 5 97 an hour mexican men earned 4 31 72 as much as white non hispanics puerto rican men earned 4 52 76 as much and cuban men earned 5 33 89 as much as white non hispanics by way of comparison black men s average wages in 1975 were 4 65 78 of the white male wage several possible reasons for the hispanics lower wages come to mind among them are age and education geographic location immigration language difficulties and discrimination for example as shown in table 1 mexicans and puerto ricans are younger on average than the white non hispanic population and earnings tend to rise with age hispanics have lower average levels of education than white non hispanics and wages are positively associated with education many mexican americans live in the southwest where prices are relatively low moreover hispanics are more likely to be recent immigrants and to lack fluency in english than white non hispanics and so to be at a disadvantage in the labor market in addition there is a widespread belief that hispanics suffer from employment discrimination and cannot obtain the wages that their human capital would command if they were non hispanic whites how much of the wage differentials described above are due to each of these factors and to other inter group differences in wage related characteristics in particular how much impact does labor market discrimination have on the average hispanic man s wage and how does this compare with discrimination against blacks this paper provides answers to these questions a few other efforts have been made to analyze the relative earnings of hispanic and white nonhispanic men using 1960 and 1970 census data fogel 1966 poston and alvirez 1973 poston alvirez and tienda 1976 long 1977 and gwartney and long 1978 we use more recent data from the 1976 survey of income and education this data set enables us to measure wage rates more accurately and to specify the wage function more completely than does the census unlike previous analysts in estimating the wage function we take account of possible selectivity bias due to the distinction between average wage offers and average observed wages thus we hope to obtain a more accurate and up to date measure of labor market discrimination against hispanic men section ii explains the method used to separate the minority white non hispanic wage differential into the portions due to differences in average characteristics and the portion due to differences in unobserved factors and discrimination taking into account the possibility of selectivity bias in the observed wage sample section iii describes the data used in the study and the specification of the wage equation the breakdown of the observed wage differentials into components due to differences in participation in the wage and salary sector local price levels average characteristics and discrimination are presented in section iv section v summarizes our findings and discusses their implications for efforts to improve the economic situation of hispanics in the united states

do zoning regulations rob rural landowners equity zoning regulations are land use control tools used to conserve resource land limit negative externalities from high density development and achieve agglomeration benefits from conserving large blocks of land however the passage of low density zoning is often challenged by landowners who claim that through it they lose their land s equity due to lower land values we investigate whether low density zoning impacts rural land value using arm s length sales in maryland s nine eastern shore counties using both a propensity score matching method and an instrumental variable approach we find that low density zoning has differentiated impacts resource parcels land values are unaffected and non resource parcels values decrease by 20 50

generics and new goods in pharmaceutical price indexes drug prices and their rate of inflation are a major focus of current policy debates on u s health care in this paper we show that where patent expiration and generic entry are significant as they are for many important classes of drugs movements in the official price indexes may be poor indicators of the actual prices paid and the resulting changes in consumer welfare when a drug goes off patent those consumers who regard the branded and generic versions as more or less perfect substitutes experience a substantial price decline and concomitant welfare gain which the current methods used by the statistical agencies fail to capture we suggest a number of alternative ways of proceeding although our computations are based on a limited number of cases they imply that the overall rate of inflation in drug prices may be quite seriously overstated while generic pharmaceuticals are the topic of our calculations the problem discussed is also of wider importance generic drugs are a special and possibly easy case

strategic pricing and detailing behavior in international markets we study three determinants of the levels of price and detailing effort across geographic markets the within market response to each variable the nature of interfirm strategic interactions both within that market and across markets we empirically examine the interactions of prozac zoloft and paxil across the united states the united kingdom germany france and italy our results indicate that all three factors driving marketing mix interactions are at play in this product category the u s market is less price sensitive than the european markets detailing elasticities are comparable across the united states germany and italy while the united kingdom and france show greater elasticity for the u s market we find that almost all deviations from nash pricing and detailing levels are due to within market interactions in the u k market deviations from nash prices come about due mostly to across market interactions both with the united states as well as the rest of europe whereas deviations from nash detailing levels are mainly due to across market interactions with the united states for italy we observe that both within and across market interactions affect price and detailing levels overall the pattern of interactions makes observed prices more similar across countries than prices implied by the estimated elasticities this underscores the importance of considering within and across market interactions in developing multimarket strategy

pharmaceuticals in u s health care determinants of quantity and price the u s pharmaceutical industry has again become the focus of considerable controversy in understanding the economics underlying this industry distinctions between short medium and long run costs are critical as is that between economic and accounting costs consumers heterogeneous valuations create strong incentives for non uniform pricing and targeted marketing the conflict between static efficiency price new drugs low near short run marginal cost and dynamic efficiency price new drugs high maintain incentives for innovation is deep and enduring this trade off is becoming more severe as the relative costs of bringing new drugs to market have increased sharply

evidence on the specification of price in the study of domestic water demand the development of lakefront property in northern wisconsin has prompted in several towns minimum frontage zoning stricter than the state standard such zoning generates an economic loss by constraining development development effect and an economic

measuring the effects of preservation on farm profits in a continuous treatment setting abstractdespite billions of dollars of public appropriations to state purchase of development rights pdr programmes there has been limited evaluation of the effects of these investments on the economic performance of preserved farms this article estimates dose response functions to evaluate the effects of enrolment in new jersey s pdr programme on farm profitability the generalized propensity score method in a continuous treatment setting is used to address selection bias arising from voluntary programme participation treatment effects are measured across treatment levels to determine whether farm profitability is affected differently across levels of programme participation our findings reveal that relative to unpreserved farms profit per acre tends to increase along lower treatment levels the profit per acre of preserved farms in the 1 40 treatment range is on average 407 higher than that of unpreserved farms in the full sample positive profit differentials averaging between 317 and 472

default risk cannot explain the muni puzzle evidence from municipal bonds that are secured by u s treasury obligations fama 1977 and miller 1977 predict that one minus the corporate tax rate will equate after tax yields from comparable taxable and tax exempt bonds empirical evidence shows that long term tax exempt yields are higher than theory predicts two popular explanations for this empirical puzzle are that relative to taxable bonds municipal bonds bear more default risk and include costly call options i study u s government secured municipal bond yields which are effectively default free and nonmalleable these municipal yields display the same tendency to be too high i conclude that differential default risk and call options do not explain the municipal bond puzzle article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

tax subsidized underpricing the market for build america bonds build america bonds babs were issued by municipalities for 20 months as a part of the 2009 fiscal package unlike traditional tax exempt municipals babs are taxable to the holder but the treasury rebates 35 of the coupon to the issuer the stated purpose was to provide municipalities access to a more liquid market including foreign tax exempt and tax deferred investors we find babs do not exhibit greater liquidity than traditional municipals babs are more underpriced initially particularly for interdealer trades babs also show a substitution from underwriter fees toward more underpricing suggesting that the underpricing is a strategic response to the tax subsidy

a simple model of the taxable and tax exempt yield curves i examine the anomalous behavior of the taxable and tax exempt yield curves long municipal yields appear too high relative to the equivalent after tax yield that can be earned in treasury or corporate bonds i discuss existing explanations of the problem and propose a simple model that relates the yields of taxable bonds to the yield curve for par tax exempts the ratio of the tax exempt yield to the taxable yield increases with maturity in the model so it is consistent with observed phenomena such as inverted yield curves for taxables and contemporaneous rising yield curves for tax exempts statistical and descriptive comparisons between the yields predicted by the model and observed yields on par bonds that the model has some promise in explaining the apparent anomalies in the behaviors of the two yield curves article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

modeling biomass procurement tradeoffs within a cellulosic biofuel cost model abstract we develop a long run cellulosic biofuel cost model that minimizes feedstock procurement and processing costs per gallon the distinguishing feature of the model is that it accounts for the procurement tradeoff between the intensive margin biomass producers participation rate and extensive margin biomass capture region to investigate the extent to which this procurement tradeoff affects processors cost minimizing decisions we apply the model to switchgrass ethanol production in u s crop reporting districts results suggest that location characteristics will determine the extent to which processors can reduce their total procurement costs by offering a higher biomass price to increase participation near the plant and reduce transportation costs

the role of firm characteristics in pharmaceutical product launches this paper examines the determinants of new pharmaceutical launches since 1980 in the g7 nations using discrete time hazard models despite the obvious incentive to amortize the large sunk costs of drug development over many markets entry occurs in only 4 of the opportunities the results indicate that firm characteristics such as domestic status and experience in the local market are important in explaining product launches in addition to market characteristics also the interaction between the innovating firm and target country is a critical component of profitability new drugs are 1 5 times more likely to be launched in markets that share a border or a language of a drug company s country of headquarters even for multinational firms the effect of competition depends on the characteristics of both the potential entrant and the incumbents domestic entrants prefer to compete with domestic incumbents although this is an industry with the potential for ubiquitous licensing and low transportation costs the specific match quality between the innovating firm and market conditions remains an important determinant of entry

auditing the producer price index micro evidence from prescription pharmaceutical preparations from january 1984 through december 1989 the bureau of labor statistics bls price index for prescription pharmaceuticals grew at 9 09 per year using bls type laspeyres index procedures with monthly price and quantity data on all prescription pharmaceuticals sold by four u s pharmaceutical manufacturers accounting for 24 of industry domestic sales we find that the four company index increases at 6 68 per year when we employ a divisia price index with smoothed weights incorporating new goods the index grows 6 03 per year why does the bls index grow 50 more rapidly than the divisia index that mystery is the focal point of our article