the demand for lotto the role of conscious selection this article presents estimates of the elasticity of demand for lottery tickets using time series data in which there is variation in the expected value of a lottery ticket induced by rollovers an important feature of our data is that there are far more rollovers than expected given the lottery design we find strong evidence that individuals do not choose their lottery numbers uniformly from a uniform distribution that is conscious selection we use our estimates to derive the inverse supply function for the industry and this enables us to identify the demand elasticity we find the price elasticity to be close to unity which implies that the operator is revenue maximizing which is the regulator s objective

corporate conservatism and relative compensation this paper demonstrates that in a simple setting with managerial concern for reputation and asymmetric information on ability most managers may refrain from undertaking innovations that stochastically dominate an industry standard common components of uncertainty lead to market inferences of managerial ability based on relative performance managers who undertake the industry standard are consequently evaluated with a more accurate benchmark than those innovating discontinuities in compensation when performance is low because of firings lead managers to have differing valuations of an accurate benchmark depending on type in particular very high and very low ability managers are more likely to undertake superior innovations than those of average ability

union rents as a source of takeover gains among target shareholders this paper tests the hypothesis that the substantial gains enjoyed by shareholders in target firms during the corporate acquisition boom of the 1980s reflected in part shareholders recouping of the value of rents in the form of wage premiums higher fringe benefits and constraints on managerial authority held by unionized labor analyzing data on the merger and acquisition experience of nearly 300 large publicly traded target firms during the period 1982 86 the author finds consistent with that hypothesis that shareholders average returns from takeover activity were higher in unionized target firms 41 than in nonunion target firms 35 for unionized workers these effects are equivalent to an annualized employee loss approaching 8 of annual earnings or 50 of the wage premium conventionally associated with union coverage

competitiveness through management of diversity effects on stock price valuation this study s premise is that firms that can lower their costs and enhance their differentiation through the effective management of their human resources have a competitive advantage using data fr

misperceiving the beliefs of others how pluralistic ignorance contributes to the persistence of positive security analyst reactions to the adoption of stock repurchase plans we consider how a social psychological bias referred to as pluralistic ignorance occurs among security analysts and how this bias may lead to behavioral conformity and isomorphism in analysts reactions to the adoption of a particular organizational policy namely stock repurchase plans our theory suggests why 1 there may be a systematic tendency for analysts to underestimate the extent to which other analysts share their reservations about repurchase plans i e reservations about whether plans reflect well on the performance prospects of adopting firms such that 2 analysts conform to other analysts and issue more positive earnings forecasts and stock recommendations in response to the adoption of repurchase plans despite having private reservations about whether the plans reflect well on adopting firms we also contend that analysts are less likely to underestimate the extent to which others share their reservations about repurchase plans to the extent that they have frequent communication ties to other analysts whereas prior neoinstitutional research on conformity and isomorphism has primarily adopted a cognitive perspective in which actors conform to the behavior of others based on their understandings of a particular policy or practice i e they take the value of the policy for granted or infer the value of the policy from others prior decisions we develop a social psychological perspective on isomorphism wherein actors imitate others based on their biased perceptions of others beliefs about the policy we also extend perspectives on institutional persistence by explaining why constituents may continue to publicly endorse a policy despite having private reservations about the policy s efficiency benefits

corporate combinations and common stock returns the case of joint ventures the gain to stockholders from mergers is well documented however there is little evidence as to whether the source of the gain is due to synergy or management displacement merger is just one of an almost limitless variety of ways in which firms combine resources to accomplish some objective a joint venture is another in addition to being of interest as an independent phenomenon because the original managements of the parent firms remain intact under a joint venture investigation of wealth gains from joint ventures provides an opportunity to isolate the management displacement hypothesis from the synergy hypothesis as the source of gains in corporate combinations our results are 1 there are significant wealth gains from joint ventures 2 the smaller partner earns a larger excess rate of return while the dollar gains are more equally divided and 3 the gains scaled by resources committed yield premiums similar to those in mergers we are inclined to interpret our results as supportive of the synergy hypothesis as the source of gain from corporate combinations this paper is an empirical investigation of the common stock returns of u s companies that enter into joint ventures with other u s companies we consider joint ventures in the context of what is by now a burgeoning literature examining the security returns of companies involved in intercorporate mergers and tender offers 1 in this context our objective is to provide evidence as to the source of the well documented gains to stockholders of firms involved in mergers and tender offers in addition joint ventures are an interesting economic phenomenon in their own right they are undertaken by many of the largest u s companies involve billions of dollars in capital expenditures annually and are subject to considerable scrutiny in the popular press in this regard our analysis provides data on what is as yet a relatively unexplored area of economic activity 2 a corporate merger represents the joining together of all the resources of two companies under a single management to accomplish some set of objectives empirical studies have found that mergers generally result in significant increases in the total market values of the merging firms with the stockholders of the

analyzing the analysts career concerns and biased earnings forecasts this paper examines the career concerns of security analysts we relate long histories of their earnings forecasts to job separations we find that relatively accurate past forecasts lead to favorable career outcomes such as remaining at or moving up to a high status large prestigious brokerage house controlling for accuracy optimistic forecasts relative to the consensus increase the chances of favorable job separations job separations depend much less on accuracy for analysts who cover stocks that are underwritten by their brokerage houses such analysts are also much more likely to be rewarded for optimistic forecasts than other analysts furthermore job separations were much less sensitive to accuracy and somewhat more sensitive to optimism during the stock market mania of the late 1990s these findings suggest that the well documented analyst forecast optimism bias is likely due to incentives to promote stocks

against naive materialism culture consumption and the causes of inequality economie orthodoxy is narrowly materialistic in that it largely neglects the cultural significance of commodities taking as its starting point sen s work on capabilities the paper examines modern consumer theory and argues that consumption is an inherently complex activity that requires considerable knowledge and expertise and which cannot be adequately understood from an individualist point of view it is argued that interpersonal comparisons are consequently more complicated than is suggested in sen s work on capabilities and that an inquiry into the cultural aspects of consumption encourages a reappraisal of the role of preferences and sheds light on the deeper causes of inequality

probability of purchase amount of purchase and the demographic incidence of the lottery tax abstract when consumers indifference curves are discontinuous at zero perhaps due to stigma or fixed costs of purchase then factors influencing the amount purchased will have a different effect on the probability of purchase estimation of the demand for a commodity like lottery tickets requires a procedure that accounts for this tobit estimation commonly used in this literature does not allow for this generalization we investigate individual lottery ticket purchases using data from a survey of households our results are quite disparate from earlier studies regarding the effects of many demographic variables on probability of play level of play and expected lottery ticket purchases and imply a different demographic incidence of the lottery tax than previous studies suggest

can expected utility theory explain gambling we investigate the ability of expected utility theory to account for simultaneous gambling and insurance contrary to a previous claim that borrowing and lending in perfect capital markets rules out a demand for gambles we show that expected utility theory with non concave utility functions can still explain gambling when the rates of interest and time preference are equal agents will seek to gamble unless income falls in a finite set of exceptional values when these rates differ there will be a range of incomes for which gambles are desired in both cases repeated gambling is not explained but market imperfections such as different borrowing and lending rates can account for persistent gambling provided the rates span the rate of time preference

market constraints as a rationale for the friedman savage utility function since the classic paper by friedman and savage 1948 it has generally been accepted that the observed fact that individuals or firms participate in unfair lotteries and other forms of unfair risk taking may be explained by a section in the individual s utility function in which the individual shows risk preference rather than risk aversion in their model friedman and savage specify a utility function which is in turn concave convex and concave thus allowing for simultaneous purchase of insurance risk aversion and participation in lotteries risk preference however while their specified utility function is indeed capable of explaining observed behavior it does seem to be rather unsatisfactory in that it is an ad hoc specification it is the purpose of this paper to suggest a set of circumstances which give rise to a friedmansavage type utility function in particular it is shown that when certain capital market imperfections exist the utility function defined over intermediate wealth should be distinguished from and may have different properties than the one defined on final wealth then even if we accept the common assumption made in the literature that individuals are risk averse that is that their utility function is concave over final wealth it is still possible that they participate in unfair gambling and of course may also purchase insurance

antitrust policy and mergers the wealth effect of supreme court decisions many believe that antitrust policy has had a dramatic impact on merger strategies in the united states for this to be true enforcement of antitrust laws must affect a wide range of firms not just those firms whose mergers are contested this study tests whether or not firms engaged in uncontested mergers are affected by antitrust enforcement as signalled by supreme court decisions using event study methodology we find that antitrust policy against mergers was binding during the 1960s and 1970s as it ulowered the value of targets in ucontested ongoing mergers

a theory of buyer seller networks this paper introduces a new model of exchange networks rather than markets of buyers and sellers it begins with the empirically motivated premise that a buyer and seller must have a relationship a link to exchange goods networks buyers sellers and the pattern of links connecting them are common exchange environments this paper develops a methodology to study network structures and explains why agents may form networks in a model that captures characteristics of a variety of industries the paper shows that buyers and sellers acting strategically in their own self interests can form the network structures that maximize overall welfare

prediction with misspecified models many decision makers in the public and private sectors routinely consult the implications of formal economic and statistical models in their work especially in large organizations and for important decisions there are often competing models of course no model under consider ation is a literal representation of reality for the purposes at hand more succinctly no model is true and different models focus on different aspects of the relevant environment this fact can often be supported by formal econometric tests concluding that the models at hand are indeed misspecified in various dimensions there are well developed practical bayesian procedures with solid theoretical foundations for combining competing models in decisionmaking geweke 2005 section 1 5 but these procedures all condition on one of the models under consideration being true non bayesian model selection procedures may be less formal but proceed under the same maintained hypothesis this leads to the common situation in which decision makers are left to balance informally the various predictions and decisions that are formal consequences of competing economic and statistical models in this circumstance serious attention is typically granted to the implications of models to which formal econometric procedures assign very little credence the approach taken here draws on a literature long established in statistics and recently emerging in econometrics that dispenses with the condition that one of the models under consider ation is true in its place it substitutes a log scor

the role of dutch auctions and lotteries in shaping the art market s of 17th century holland abstract this article examines institution formation in the nascent art markets of 17th century amsterdam and haarlem in response to external and internal pressures on artists guilds in amsterdam poor quality imports often copies were touted as originals and sold in clandestine dutch auctions the deliberate confusion about quality imparted to the market features similar to those of akerlof s lemons model and a need for quality guarantees gave occasion to dealers in haarlem and other towns demand was viewed as fixed and guilds toughened restrictions on the supply side dissenters successfully used lotteries to show that demand can be engendered promotion was to become a key feature of later art markets

the new economics of organization over the last ten years or so an important new approach to the study of organizations has emerged within economics it is perhaps best characterized by three elements a contractual perspective on organizational relationships a theoretical focus on hierarchical control and formal analysis via principal agent models this paper provides political scientists with an overview of the new economics of organization and explores its implications for the study of public bureaucracy so far positive political theory has not contributed much to our understanding of public bureaucracy in part this is due to the unsympathetic treatment that rational modeling and most other modes of quantitative analysis have long received from students of public administration the other side of the coin however is that positive theorists have not made much of an effort to develop theories of bureaucracy their concerns have centered around two basic mechanisms of social choice voting and markets and they have devoted little systematic attention to a third mechanism that is clearly important for understanding how societies and other aggregates make collective decisions this third and relatively unexplored mechanism is hierarchy movement toward a positive theory of hierarchies would fill a serious gap in the social choice literature while at the same time making a theoretical contribution that strikes to the essence of public bureaucracy indeed of all organizations in fact significant steps toward a positive theory of hierarchies have very recently been taken but by economists not political scientists in small numbers of course economists made contributions to the study of public bureaucracy some time ago with the pioneering works of downs 1967 tullock 1965 and niskanen 1971 but this new wave of theoretical work is different it is already a large complex body of literature that is the focus of innovation and excitement among a growing number of economists and it reflects an unusual degree of theoretical coherence and cumulative effort work in this tradition tends to receive orientation from a distinctive economic approach to the analysis of organizations an approach perhaps best characterized by three elements a contractual perspective on organizational relationships a focus on hierarchical control and formal analysis via principal agent models this approach has emerged from recent attempts to move beyond the neoclassical theory of the firm which assumes away all organizational considerations to a theory of economic organizations that can explain why firms corporations and other enterprises behave as they do propo

evaluating point and density forecasts of dsge models this paper investigates the accuracy of point and density forecasts of four dsge models for inflation output growth and the federal funds rate model parameters are estimated and forecasts are derived successively from historical u s data vintages synchronized with the fed s greenbook projections point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods despite their common underlying new keynesian modeling philosophy forecasts of different dsge models turn out to be quite distinct weighted forecasts are more precise than forecasts from individual models the accuracy of a simple average of dsge model forecasts is comparable to greenbook projections for medium term horizons comparing density forecasts of dsge models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts

the effects of conventional and unconventional monetary policy on forecasting the yield curve abstract we investigate how conventional and unconventional monetary policies affect the dynamics of the yield curve by assessing the performance of individual yield curve models and their mixtures out of sample forecasts for u s bond yields show that the arbitrage free nelson siegel model and its mixtures with other models perform well in the period of conventional monetary policy whereas the random walk model outperforms all the other models in the period of unconventional monetary policy the diminished role of the no arbitrage restriction in forecasting the yield curve since 2009 can be attributed to unconventional monetary policy which resulted in low correlations between short and long term bond yields and little variation in the short term rates during the period of the maturity extension program in 2011 2012 the superiority of the random walk forecasts is more pronounced reinforcing our finding that the monetary policy framework affects yield curve forecast accuracy

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

syndication institutionalization and lottery play1 why do people play the lottery since lottery tickets are assets with negative expected return lottery play challenges the basic assumptions of economic theory this article approaches lottery play from a networks perspective and focuses on syndicate play a comparison of the development of lottery markets in germany austria spain and portugal from the 17th century onward shows that lottery play declined with rising incomes except in countries in which syndicate play diffused widely namely spain and to a lesser extent portugal although syndicating originated among the relatively poor as a response to an increase in lottery prices it persisted even when individual play became affordable this article contends that syndicating endured because of an institutionalization process by which lottery tickets have transformed from purely economic assets into symbolic carriers of interpersonal ties that convey membership and status position in relevant social networks

the social construction of market value institutionalization and learning perspectives on stock market reactions this study advances a social constructionist view of financial market behavior the paper suggests that the market s reaction to particular corporate practices such as stock repurchase plans are not as financial economists contend simply a function of the inherent efficiency of such practices rather stock market reactions are also influenced by the prevailing institutional logic and the degree of institutionalization of the practice the theory first predicts that the emergence of the agency perspective on corporate governance in the mid 1980s represented a powerful new institutional logic that would lead the market to reverse its prior aggregate reaction to stock repurchase plans in the united states the paper then considers the potential for institutional decoupling of repurchase plans and develops competing hypotheses about how the market value of these policies might have changed as more firms formally adopted but did not implement the plans over time in contrast to a financial economic pers

reputation and performance among security analysts members of the institutional investor all american research team supply more accurate earnings forecasts than other analysts when forecasts are matched by the corporation followed and by the date of brokerage house issuance this contemporaneous advantage is complemented by a timing advantage all americans supply forecasts more often than other analysts stocks returns immediately following large upward forecast revisions suggest that all americans impact prices more than other analysts however there is virtually no difference in returns following large downward revisions nevertheless the collective results suggest a positive relation between reputation and performance and assuming that all americans are better paid pay and performance

anonymous market and group ties in international trade abstract history provides many examples of cohesive groups dispersed over several countries who exploit the ties between their members to gain entry into foreign markets the phenomenon is well established empirically and noteworthy because it suggests the importance of informational barriers in international transactions we present a simple model where output is produced through a joint venture and agents have complete information domestically but are unable to judge the quality of their match abroad a minority of individuals otherwise identical to all others can exploit complete information in international matches between group members if they so choose group ties increase aggregate trade and income but hurt the anonymous market because they deprive it disproportionately of the group s more productive members

value event studies this paper discusses appropriate methodology for measuring the effect of an event on the value of a firm s equity th e key points are 1 cumulative abnormal returns do not measure the effect of an event on firm value if there are dividends during the event window 2 it is generally appropriate to use pre event parameters of the return generating process even if the event alters the parameters during the event window and 3 controlling for fact ors other than the return on the market portfolio improves the power of the estimation the formula for the effect of an event on the value of a firm when there are dividends during the event window is developed a nd applied to a study of the effect of the bhopal disaster on the value of union carbide copyright 1992 by mit press

career concerns of mutual fund managers we examine the labor market for mutual fund managers using data from 1992 1994 we find that termination is more performance sensitive for younger managers we identify possible implicit incentives created by the termination performance relationship the shape of the termination performance relationship may give younger managers an incentive to avoid unsystematic risk direct effects of portfolio composition may also give younger managers an incentive to herd into popular sectors consistent with these incentives we find that younger managers hold less unsystematic risk and have more conventional portfolios promotion incentives and market responses to managerial turnover are also studied

on the use of holdout samples for model selection researchers often hold out data from the estimation of econometric models to use for external validation however the use of holdout samples is suboptimal from a bayesian perspective which prescribes using the entire sample to form posterior model weights this paper examines a possible rationale for the use of holdout samples data inspired modifications of structural models are likely to lead to an exaggeration of model fit the use of holdout samples can in principle set an incentive for the modeler not to exaggerate model fit

predictable events and excess returns the case of dividend announcements abstract this paper hypothesizes that the risk per unit of time and the required rate of return are higher than normal during an event period whose timing can be predicted consistent with this hypothesis this paper presents empirical evidence indicating that the unconditional mean rate of return the variance of stock returns and their systematic risk are higher than usual during dividend announcement periods however the documented increases in the systematic risk are not large enough to fully explain the excess returns this finding is puzzling and hard to reconcile with existing theory

the economic analysis of lotteries lotteries determinants of ticket sales and the optimal payout rate this paper considers policy issues arising in the design regulation and taxation of lotteries focusing on the market for an on line lottery game demand determines who buys lottery tickets and in what quantities the design of lotteries affects the terms on which tickets are supplied uk data suggest that its lottery may be priced too high to maximize lottery revenue more revenue might be raised if the proportion of sales allocated to tax and other levies were smaller having established the positive economics of lotteries the paper then assesses their welfare implications pari mutuel lotteries enjoy scale economies and as natural monopolies are invariably run either by government agencies or a regulated licensee i estimate consumer surplus and identify the excess burden that arises from existing over taxation of lotteries the large price elasticity of demand implies that revenue raised from the lottery is raised very inefficiently moreover the demand for lottery tickets is inferior and there is some evidence that such games are contagious and addictive so using lotteries as a vehicle for raising revenue is extremely regressive finally i consider other policy implications induced effects on charitable giving and on other forms of gambling the impact on the government budget perceptions of risk and distributional considerations ian walker

the effects of social networks on employment and inequality we develop a model where agents obtain information about job opportunities through an explicitly modeled network of social contacts we show that employment is positively correlated across time and agents moreover unemployment exhibits duration dependence the probability of obtaining a job decreases in the length of time that an agent has been unemployed finally we examine inequality between two groups if staying in the labor market is costly and one group starts with a worse employment status then that group s drop out rate will be higher and their employment prospects will be persistently below that of the other group

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

politicians luck of the draw evidence from the spanish christmas lottery incumbent politicians tend to receive more votes when economic conditions are good in this paper we explore the source of this correlation exploiting the exceptional evidence provided by the spanish christmas lottery because winning tickets are typically sold by one lottery outlet winners tend to be geographically clustered this allows us to study the impact of exogenous good economic conditions on voting behavior we find that incumbents receive significantly more votes in winning provinces the evidence is consistent with a temporary increase in happiness making voters more lenient toward the incumbent or with a stronger preference for the status quo

event studies in management research theoretical and empirical issues we examined the use of event studies in management research and found that there was inadequate attention paid to theoretical and research design issues this lack of attention may lead to false in

security price reactions around corporate spin off announcements abstract we examine security price reactions around the announcements of 123 voluntary spin offs by 116 firms between 1963 and 1981 involving a pro rata distribution of the common stock of a subsidiary to the stockholders of the parent firm the median spin off in the sample is 6 6 of the original equity value and is associated with an abnormal return of 7 0 from 50 days prior to the announcement through completion of the spin off no evidence is found to indicate the gains to stockholders represent wealth transfers from senior securityholders over the entire event period we find positive gains for firms engaging in spin offs to facilitate mergers or to separate diverse operating units but negative returns to firms responding to legal and or regulatory difficulties in the two day interval surrounding the first press announcement we find positive average excess returns for all groups

security analysts career concerns and herding of earnings forecasts several theories of reputation and herding see e g scharfstein and stein 1990 suggest that herding among agents should vary with career concerns our goal in this paper is to document whether such a link exists in the labor market for security analysts specifically we look at the relationship between an analyst s job tenure a proxy for career concerns and various measures of stock earnings forecast performance we establish the following key results 1 older analysts are more likely to produce earnings forecasts of firms before younger ones 2 their forecasts also deviate more from the consensus forecast than their younger counterparts we argue that these results are consistent with some reputational models of herding we also establish a number of auxiliary findings regarding the relationship between forecast accuracy and frequency of forecast revisions with job tenure

alternative mechanisms for corporate control we examine performance and management characteristics of fortune 500 firms experiencing one of three types of control change internally precipitated management turnover hostile takeover and friendly takeover we find that firms experiencing internally precipitated management turnover perform poorly relative to other firms in their industries but are not concentrated in poorly performing industries in contrast targets of hostile takeovers are concentrated in troubled industries there is also weaker evidence that hostile takeover targets underperform their industry peers we interpret this evidence as consistent with the idea that the board of directors is capable of firing managers whose leadership leads to poor performance relative to industry but that an external challenge in the form of a hostile takeover is often required when the whole industry is in decline the evidence also indicates that firms run by a member of the founding family are less likely to experience either internally precipitated top management turnover or a hostile takeover on the other hand firms whose top management team is dominated by a single relatively young top executive while lacking in internal discipline are more likely to experience a hostile takeover this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

networks as the pipes and prisms of the market1 this article draws an analytical distinction between two types of market uncertainty egocentric which refers to a focal actor s uncertainty regarding the best way to convert a set of inputs to an output desired by a potential exchange partner and altercentric which denotes the uncertainty confronted by a focal actor s exchange partners regarding the quality of the output that the focal actor brings to the market given this distinction the article considers how the value of structural holes and market status vary with these two types of uncertainty the article proposes that the value of structural holes increases with egocentric uncertainty but not with altercentric uncertainty in contrast the value of status increases with altercentric uncertainty but declines with egocentric uncertainty thus actors with networks rich in structural holes should sort into markets or market segments that are high in egocentric uncertainty high status actors should sort into markets that are low in egocentric