the use of unsigned earnings quality measures in tests of earnings management this paper examines the implications of using the absolute value of discretionary accruals when testing for earnings management first we analytically develop the mean and variance of the distribution of absolute discretionary accruals and show that the expected value is an increasing function of the variance in the underlying error term from the first stage discretionary accrual estimation model second we highlight several firm characteristics that are related to the error variance in discretionary accrual estimation models using simulations we show that correlation between the earnings management partitioning variable and these firm characteristics leads to an overrejection of the null hypothesis of no earnings management third we provide research design suggestions to help researchers mitigate the potential bias arising from the use of unsigned measures of earnings management using these suggestions we replicate a recent study and demonstrate that the inferences change after controlling for operating volatility

computational analysis of the accession of chile to the nafta and western hemisphere integration we present the results based on the michigan computational general equilibrium model of western hemisphere economic integration it is shown that tariff elimination will have beneficial effects for most countries involved although the benefits as well as the costs of liberalizatio n are small however if a hemispheric treaty were to stimulate an increase in the capital stocks of the major south american economies the welfare gains would be substantial sensitivity tests reveal that the model exaggerates the likely gains from economies of scale due to liberalization but the error is small in this context because the impact of trade liberalization is small when econometric estimates of scale economies are incorporated into the model the welfare gains due to capital flows nevertheless remain robust a comparison of results for chile using different databases indicates that the impact of regional liberalization using a 1980 database may overstate the impact on the nonferrous metals sector in particular and manufacturing more generally nonetheless when using a 1990 database the change in output of the nonferrous metals sector remain larger than for any other sectors in the chilean economy

on the efficiency of law a public choice perspective economists have not yet developed a comprehensive theoretical framework incorporating transaction cost economics within a public choice perspective for predicting when there will be an efficiency problem with the law transaction cost reasoning and the rent seeking insight have not been applied systematically in a dynamic institutional context to evaluate when the law will be used to increase or not minimize problems of bounded rationality and opportunism this paper takes a first step at identifying and remedying this deficiency the paper first provides a critical review of relevant theoretical contributions made by becker 1983 1985 posner 1977 priest 1977 rubin 1977 1982 williamson 1975 1985 and others we then show how analysis of the efficiency of law can be synthesized into a broader whole by incorporating transaction cost economics more fully into existing understanding of rentseeking in the political realm thus within the public choice paradigm this paper develops a deeper transaction cost analysis of the efficiency of law building on prior research by the authors crew and rowley 1988a 1988b twight 1983 1988 the paper identifies variables that position legal rules on a spectrum that ranges from those that are predominantly transaction cost

voter preferences and state regulation of smoking i introduction tobacco taxation and smoking restrictions are two areas of regulation for which states have maintained a high level of control relative to the federal government 1 given this flexibility states have established a wide range of restrictions on smoking in areas such as government workplaces restaurants bars shopping malls indoor arenas and hospitals 2 although most states restrict smoking in hospitals there is considerable variation among states in restrictions in other areas in the 1998 99 period of this study about two thirds of states restricted smoking in restaurants whereas only four states restricted smoking in bars what has led to variation in smoking restrictions across states in a democratic society one would expect voter preferences to play an instrumental role in determining which policies are enacted and which are not this article provides the first empirical exploration of whether state level smoking restrictions are consistent with preferences of the citizenry taking into account both voting behavior and the role of smoking status in influencing whether an individual votes specifically we examine whether voters preferences for smoking restrictions in restaurants bars malls indoor sporting events and hospitals are consistent with state level restrictions on smoking in each of these public areas 3 our research draws on public choice models of policy making by state and local governments voters preferences typically play a central role because voting affects legislators incentives to support regulations 4 public choice research also finds that nonvoter factors may influence state and local policy making 5 in the case of smoking regulations public health advocates or tobacco industry lobbyists might influence regulatory policies the specific building block of our analysis of state restrictions on smoking is information on individuals voting behavior which we link to their smoking status and preferences over smoking restrictions our analysis uses measures of political pressure that account for individual preferences as well as their voting behavior to examine the possible role of interest group pressures we also control for nonvoter influences on smoking regulation including the proportion of the state population who smoke measures of state ideology and size of the tobacco industry with the exception of smoking in bars there is majority support for smoking restrictions unsurprisingly smokers are less supportive of restrictions than are nonsmokers nonetheless even smokers demonstrate a high level of support for many restrictions smokers are also less likely to vote than are nonsmokers even after controlling for other demographic factors the lower voting rate diminishes voter opposition to antismoking regulation but is usually not critical in view of the substantial support that most smoking restrictions have among smokers the political pressure indices for restrictions on smoking in each public area are generally significantly related to the probability that a state restricts smoking in that public area the nonvoter factors such as the smoking rate in the state and tobacco s role in the state economy are rarely influential policy debates over the desirability of smoking restrictions emphasize possible health risks due to exposure to environmental tobacco smoke ets and effects on business profitability the primary argument for expanding smoking restrictions is to protect workers and customers from exposure to ets 6 as our results show voters are generally supportive of smoking restrictions in public areas which would thereby protect workers as well as themselves and other customers however there is a substantial controversy over the extent of health risks associated with exposure to ets the basis for the push by the u s occupational and safety health administration osha for increased smoking restrictions to protect workers is the highly controversial u

strategic extremism why republicans and democrats divide on religious values party platforms differ sharply from one another especially on issues with religious content such as abortion or gay marriage given the high return to attracting the median voter why do vote maximizing politicians take extreme positions in this paper we find that strategic extremism depends on an intensive margin where politicians want to induce their core constituents to vote or make donations and the ability to target political messages toward those core constituents our model predicts that the political relevance of religious issues is highest when around one half of the voting population attends church regularly using data from across the world and within the united states we indeed find a nonmonotonic relationship between religious extremism and religious attendance

clientelism and vote buying lessons from field experiments in african elections electoral clientelism and vote buying are widely perceived as major obstacles to economic development this is because they may limit the provision of public goods in this paper we review the literature on clientelism and vote buying and propose the use of field experiments to evaluate empirically the consequences of these phenomena we provide an overview discuss implementation and interpret the main results of recent field experiments conducted by the authors in west african countries clientelism and vote buying seem to be effective and to enjoy widespread electoral support the results suggest that increased access to information and political participation by women may limit clientelism in addition voter education campaigns may undermine the effects of vote buying on voting behaviour we argue that our findings may inform the design of development aid interventions as a way effectively to increase public good political accountability we also discuss directions for fruitful future research copyright 2009 oxford university press

promotion of the agricultural sector and political power in austria in most industrialized countries farmers as a small and well orgnized group are ableto influence government decisions to get rent creating proposals enacted two different viewsare presented to explain why the chicagoan view efficient redistribution hypothesis and the virginian view inefficient outcome of political bargaining a vertically structuredempirical model of the austrian farm sector is employed to test both hypotheses quantitativeresults of the welfare transfers from consumers taxpayers to farmers and agribusiness firmsare derived and the political weights of these groups are presented

the economics of takings and compensation when land and its public use value are in private hands before governments can take private property property owners can often alter the public use value this article models this capability and studies its implicationsf or takings compensation tying compensation to private land values generally does not prompt efficient land use practices tying compensation to land s public use value prompts efficient landowner behavior but at a high budgetary cost to the government when there are deadweight costs of government funds efficient regimes deliver land use incentives at minimum budgetary cost negligence compensation does so by affording landowners positive compensation only if they act efficiently to protect their property s public use value

the changing landscape of accrual accounting a fundamental property of accrual accounting is to smooth temporary timing fluctuations in operating cash flows indicating an inherent negative correlation between accruals and cash flows we show that the overall correlation between accruals and cash flows has dramatically declined in magnitude over the past half century and has largely disappeared in more recent years the adjusted r 2 from regressing changes in accruals on changes in cash flows drops from about 70 90 in the 1960s to near zero under 20 in more recent years in exploring potential reasons for the observed attenuation we find that increases in non timing related accrual recognition as proxied by one time and nonoperating items and the frequency of loss firm years explain the majority of the overall decline on the other hand temporal changes in the matching between revenues and expenses and the growth of intangible intensive industries play only a limited role in explaining the observed attenuation finally the relative decline of the timing role of accruals does not appear to be associated with an increase in the asymmetrically timely loss recognition role

taxes tariffs and transfer pricing in multinational corporate decision making three interrelated aspects of u s multinational corporation activity are analyzed here the ability to shift profits from high tax countries to low tax countries the impact of host country taxes and tariffs on the distribution of real capital and the influence of these policies on international trade patterns of the united states and host countries the cross sectional empirical analysis indicates that the observed pattern of reported profits in high and low tax countries is consistent with income shifting behavior and that real investment responds to host country effective tax rates and tariffs the united states appears both to import more from and export more to low tax countries where mnc investment is greater but this bilateral focus must be amplified to consider multilateral effects if trade benefits are to be projected copyright 1991 by mit press

government policy and the firm s capital structure abstract the purpose of this paper is to examine the effects of commonly observed forms of government intervention on the firm s capital structure we show that since market claims against the firm are always properly priced the firm is forced to take market claimants interests into account on the other hand since government claims are usually not adjusted for risk the firm can take advantage of the government it does so by choosing strategies that extract maximum value minimum cost from these policies in particular the firm uses its capital capital structure to maximize the value of the policy thus leading to a determinate capital strucure

the roles of ownership ecology and economics in public wetland conservation decisions abstract scholars have studied the problem of optimal reserve site selection however the actual conservation choices made by government decision makers may yield reserve networks that are far from optimal this paper uses data on patterns of wetland conservation in austria in order to identify patterns in government decisions regarding which wetlands to protect we find that conservation decisions are guided at least in part by variation in ecological value and economic cost however there is also a marked bias against conserving lands that happen to be privately owned this bias against protecting private land is likely to be cost ineffective driven by asymmetric information and political pressure

economic development institutional change and the political economy of agricultural protection an econometric study of belgium since the 19th century this empirical study uses 100 years of annual data on 11 agricultural commodities from belgium to measure the impact of structural changes coinciding with economic development and changes in political institutions on agricultural protection the analysis shows that changes in agricultural protection are caused by a combination of factors governments have increased protection and support to farmers when world market prices for their commodities fell and vice versa offsetting market effects on producer incomes other economic determinants were the share of the commodities in total consumer expenditures negative effect and in total output of the economy positive effect with belgium a small economy there was no impact of the trade position changes in political institutions have affected agricultural protection democratic reforms which induced a significant shift in the political balance towards agricultural interests such as the introduction of the one man one vote system led to an increase in agricultural protection the integration of belgian agricultural policies in the common agricultural policy in 1968 coincided with an increase in protection ceteris paribus both institutional factors related to changes in access to and information about the decision making at the eu level and structural changes in the agricultural and food economy may explain this effect

capital budgets borrowing rules and state capital spending abstract this paper compares the level and composition of government spending in u s states that maintain separate budgets for capital and operating expenditures with that in states that employ unified budgets it also investigates the effects of pay as you go financing rules for capital projects the empirical findings suggest that states with separate capital budgets spend more on public capital projects than comparable states with unified budgets there is no evidence that the presence or absence of a capital budget affects the level of non capital spending pay as you go requirements for financing capital projects are associated with lower levels of both capital and non capital spending

globalization derailed multinational investors response to the 1997 denial of fast track trade negotiating authority is globalization being derailed by opponents results of this event study analysis of the 1997 fast track denial suggest that investors 1 may have perceived fast track as a debate on globalization and 2 appear to have expected financial losses to result from the failure to enact fast track regression results further support the event study findings

factors associated with the year end decline in working capital working capital is an important indicator of firm operational efficiency all else being equal lower levels signal greater efficiency managers are thus likely to be motivated to report lower levels of working capital at times of greater external attention we find that working capital levels decrease in the fourth fiscal quarter significantly more than expected conditional on seasonal changes in economic activity the decrease subsequently reverses in the following first fiscal quarter evidence indicates that firms manage down year end working capital through transactions that increase year end operating cash flow and that firms spread this activity over all working capital accounts finally the temporary decrease in year end working capital is correlated with compensation benchmarks and analysts annual cash flow forecasts the temporary drop is also more pronounced for firms with industry dominance this paper was accepted by mary barth accounting

politics and the rescue of insolvent savings and loans before 1989 the results presented in this paper are consistent with those predicted by public choice economists who believe that regulatory agencies represent the interests of their controlling congressional committees membership on committees is not random congressmen seek committee assignments where they can represent the interests of their constituency congressmen from states where financial institutions are significant will seek membership on their respective banking committees once on those committees congressmen will seek to protect and promote their own constituency in the case of the savings and loan industry insolvent savings and loans received benefits from staying in operation these savings and loans gained another chance to gamble for resurrection being shut down or placed in a management consignment program did not give this option the results presented in our paper indicate that participation in one of the rescue programs is not random savings and loans in states with political power representation on the senate banking committee are less likely to be resolved

economic principles and incentives structure management and funding of agricultural research in the united states the problems faced by public agricultural research and land grant system in the us is discussed in the context of its response to public pressure and criticism several proposals are put forward to address these problems which are related to the following issues grant funding versus formula funding breakdown of organized science in agriculture privatization of the land grant system harnessing the efficiencies of competition in public agricultural research and long term social productivity modelling

the taking of land when should compensation be paid the analysis focuses on the question of whether the payment of compensation for land taken by eminent domain is efficient when the taking decision is independent of land use zero compensation is efficient but full compensation is not when the project decision is no longer independent of land use and can be affected by investor decisions neither compensation rule is generally efficient because of the moral hazard problem with risk averse consumers and risk neutral firms the previous conclusions remain essentially unchanged however when the project decision rule involves a budgetary fiscal illusion additional compensation may be necessary to correct the incentives facing the project decision maker

on the political economy of guest worker programs in agriculture guest workers have provided a source of agricultural labor supply in many countries recent legislative proposals on immigration reform in the united states have renewed discussions about the role of guest worker programs and highlighted the arguments for and against such programs even within the agricultural sector there has not been strong broad based support for an expansion in the number of guest workers a model is developed that considers competing interests between commodity groups horticulture crops and grain crops to explain this lack of support and then a series of simulations are conducted to highlight the possible economic effects of an expanded guest worker program results suggest that an increase in the labor supply would have much larger economic impacts for horticultural producers and firms in the supporting input markets furthermore under some conditions simulation outcomes show how an increase in the labor supply may lead to small revenue losses for both producers and input suppliers in grain markets

chief executive officer equity incentives and accounting irregularities this study examines whether chief executive officer ceo equity based holdings and compensation provide incentives to manipulate accounting reports while several prior studies have examined this important question the empirical evidence is mixed and the existence of a link between ceo equity incentives and accounting irregularities remains an open question because inferences from prior studies may be confounded by assumptions inherent in research design choices we use propensity score matching and assess hidden omitted variable bias within a broader sample in contrast to most prior research we do not find evidence of a positive association between ceo equity incentives and accounting irregularities after matching ceos on the observable characteristics of their contracting environments instead we find some evidence that accounting irregularities occur less frequently at firms where ceos have relatively higher levels of equity incentives

budgetary policy with unified and decentralized appropriations authority the divestiture of the house appropriations committee in the1880 s has received considerable attention of an empiricalnature this paper presents a formal model of legislativedecisionmaking using a common agency formulation to representinterest group lobbying of legislators this framework is usedto analyze the effects of decentralizing appropriationsauthority the conditions under which decentralization leadsto higher spending are characterized it is argued that theconventional view that divestiture caused higher levels ofspending only holds if decentralization created barriers tolobbying and political bargaining across different committees in addition the role of specialized committee knowledge isexamined

pricing and regulating affect environmental ethics effluent charges and tradeable permits are economically efficient but rarely used a new explanation for this discrepancy is offered pricing may crowd out environmental ethics in the pricing and via spillovers also in non pricing sectors pricing may therefore increase pollution providing a reason why decision makers tend to reject environmental pricing five propositions showing the conditions for counterproductive effects are advanced they are consistent with available empirical evidence regulation by setting standards and subsidies damage environmental ethics less than pricing because pollution is condoned damaging environmental ethics may prevent political action in favor of the environment

ideological conviction and persuasion in the rent seeking society abstract the paper develops a model of rent seeking in a democratic political context where voting as well as rent seeking matters in this context the paper demonstrates that voter ideology is a constraint on the rent seeking game as well as a possible avenue of rent seeking in a setting where there are both rent seeking and ideological interest groups rent seekers can free ride on the efforts of ideologues which tends to reduce rent seeking effort in a setting where complementary economic and ideological interest groups coordinate their efforts both rent seeking and ideological conflict tend to increase

the theory of economic regulation and public choice and the determinants of public sector bargaining legislation in this study we used the theory of economic regulation and public choice to derive a model to explain the pattern of public sector bargaining laws among the states we find this type of legislation is influenced by the following demand factors 1 the extent of public sector union membership which represents the interest group hypothesis has a positive influence on pro union legislation 2 the extent of employer opposition to unions as measured by unfair labor practice charges against employers in representation elections has a negative effect on bargaining laws 3 two taste variables the salaries of public employees and the percent of nonwhite employment in the state have a positive influence on these laws a result which will be surprising to many people is that the extent of private sector union membership has no significant influence on the passage of public sector bargaining legislation

voting and paying for public goods an application of the theory of the core abstract let any coalition with a majority of all voters have the power to choose the quantities of public goods under rule i a majority coalition bears a cost of its decision that is proportional to its size under rule ii it must bear the whole cost of its decision thus rule i imposes costs on minorities although they have no power to choose the quantities of public goods while rule ii allows goods to have some attributes of semiprivate goods it is shown that a nonempty core under rule i implies a nonempty core under rule ii but not conversely necessary and sufficient conditions in terms of the properties of the von neumann morgenstern characteristic function are given

demographic structure and the political economy of education subsidies this paper investigates the politico economic impact of a society s age structure on the extent of public funding of education education subsidies serve to internalize positive spillovers of human capital investment but redistribute resources from the working old to the non working young thus creating a conflict of interest between the two generations the political process is characterized by a representative democracy

the bias in favor of pro tariff lobbies abstract we show that the probability of success of the pro tariff lobby defined as a decreasing function of the ratio of consumer loss to producer gain rent generated by the tariff rises with the tariff under very general conditions this appears as an exception to becker s view that less distortionary measures tend to be adopted over their more distortionary counterparts we then provide a micro foundation for our probability definition using the imperfectly discriminating lobbying framework

the rewards to meeting or beating earnings expectations abstract this paper finds that firms that meet or beat current analysts earnings expectations mbe enjoy a higher return over the quarter than firms with similar quarterly earnings forecast errors that fail to meet these expectations further such a premium to mbe although somewhat smaller exists in the cases where mbe is likely to have been achieved through earnings or expectations management the findings also indicate that the premium to mbe is a leading indicator of future performance this premium and its predictive ability are only marginally affected by whether the mbe is genuine or the result of earnings or expectations management

a tale of two cities the political economy of local investment climates in indonesia abstract there is little doubt that protecting property rights reducing corruption and improving public services are desirable long term objectives for all countries but are such institutional prescriptions sufficient or even necessary to achieve investment and growth by exploring the political economy of the cities of solo and manado in indonesia this article shows that relationship based rather than rule based cooperation between government leaders and local firms can provide an effective mechanism to boost investment and improve local investment climates our findings challenge the conventional wisdom that impartial rule based economic governance is a precondition for investment although it suggests that the creation of such institutions may make growth more sustainable and equitable in the medium and long term

endangered species and timber harvesting the case of red cockaded woodpeckers i introduction the issue of differentiating legitimate public regulation of private property from regulatory takings has become important and controversial in the united states the endangered species act esa probably the most powerful environmental regulation ever enacted in the united states is in the center of this controversy the modern version of the esa was enacted in 1973 and it has been amended several times since the esa is intended to protect species from becoming extinct the esa creates two main processes the designation of species and their critical habitats through listing and protection souder 1995 shows that listing is important because it triggers the four major provisions of the esa which are to conserve listed species avoid jeopardizing them avoid destruction of critical habitat and avoid taking them under the esa no person may take endangered or threatened species in the esa the term take means to harass harm pursue hunt shoot wound kill trap capture collect or attempt to engage in any such conduct 16 usc section 1532 19 furthermore the u s department of the interior has defined the statutory term harm as an act which actually kills or injures wildlife including significant habitat modification or degradation where it actually kills or injures wildlife by significantly impairing essential behavioral patterns including breeding feeding or sheltering 50 cfr section 17 3 1995 this regulatory definition has been upheld by the u s supreme court sweet home v babbitt ii s ct 714 1995 and it is the fulcrum on which the government levers regulation of private land because habitat modification may be a take flick et al 1996 indicate that the normal forestry activities of landowners fall within the purview of the u s fish and wildlife service on lands with endangered or threatened species u s government accounting office 1995 shows that more than 80 of listed endangered species have some habitat on private lands that are mostly used for forestry or agricultural purposes furthermore the list of endangered or threatened species is growing continually with no limit in sight because the esa prescribes behavior and extracts use rights from the bundle purchased or inherited by private landowners its potential reach over private land is very large yet uncertain few publicly provided incentive programs have been offered to private landowners for protection and enhancement of endangered species until very recently 1 because of this stick approach to public policy regarding endangered species the usual presumption is that other things being equal landowners will avoid management activities that might attract endangered species onto their lands and possibly develop their lands early 2 this belief continues to produce advocates for protection of private property rights not only from private landowner organizations but also from public agencies and some environmental groups recently the u s fish and wildlife service with the support of the environmental defense fund designed and implemented the safe harbor program no surprise policy and no take regulation as noted by zhang 1999 these policies were in part designed to mitigate the existing incentives to manage against endangered species on private lands on the other hand individuals and groups who want to stop development construction or logging may latch onto the esa as a tool to do so with little or no concern in fact for listed species not in my back yard and other motives are served well by the strong esa as currently formulated as such these individuals and groups who can be labeled as bootleggers are no doubt supportive of the current esa 3 however with the exception of lueck and michael 2003 there is little empirical evidence in support of the view that weakness in the current endangered species related regulations impedes good management and stewardship of forest resources

do analysts understand the economic and reporting complexities of derivatives we investigate whether and how the complexity of derivatives influences analysts earnings forecast properties using a difference in differences design we find that relative to a matched control sample of non users analysts earnings forecasts for new derivatives users are less accurate and more dispersed after derivatives initiation these results do not appear to be driven by the economic complexity of derivatives but rather the financial reporting of such economic complexity overall despite their financial expertise analysts routinely misjudge the earnings implications of firms derivatives activity however we find evidence that a series of derivatives accounting standards has helped analysts improve their forecasts over time

random errors dirty information and politics rational voters assessments of candidates and policy proposals are unbiased but affected by random errors clean information decreases these errors while dirty information increases them in politics most voting procedures weigh random individual errors asymmetrically thus such errors do not counterbalance one another in the aggregate they systematically affect politics this illuminates the roles of political propaganda and interest groups it helps to explain various puzzles in public choice e g the frequent use of inefficient policy instruments institutional conditions are identified that shape the aggregate impact of individual errors and the politicians incentives to produce dirty information

internalization an event study test abstract the internalization theory of multinational firms proposes that direct international investment occurs when a firm has information related intangible assets with public good properties we find that firms with characteristics suggesting the presence of information based assets experience a significantly positive stock price reaction upon announcing a foreign acquisition on the other hand firms apparently lacking such assets experience at best zero abnormal returns upon announcing overseas acquisitions

compensation payments for habitat heterogeneity existence efficiency and fairness considerations abstract compensation payments for voluntary conservation measures have become an important tool for biodiversity conservation worldwide each year substantial financial resources are spent on such measures particularly in the context of agri environmental schemes in europe a debate has started on whether this money is spent effectively in response to this debate it has been suggested that a portfolio of measures leading to habitat heterogeneity be implemented although payments for heterogeneous conservation measures have been analysed in the literature it has never been questioned that payments can be designed in a way that encourages enough land users to carry out each conservation measure within a portfolio of measures the purpose of this paper is to demonstrate that such payments do not always exist moreover in cases where payments for habitat heterogeneity exist the payment scheme may require overcompensation of the land users posing a limit to both efficiency and fairness considerations

russia s resource capitalism market vs political signalling since the early post soviet era when many strategically important russian oil and gas fields were sold on unfavourable terms the state has been seeking to regain control of these strategic assets with putin s return to the presidency in 2012 russia s u turn over oil and gas privatizations has again caused market consternation we examine strategic asset acquisitions by russian o g companies during putin s first terms as president and suggest that there should however be few surprises under putin strategic deals in russia are often informal dominated by russian partners subject to internecine rivalries and we show are somehow known by markets prior to promulgation findings suggest that in russia deals of strategic substance are recognized by financial markets prior to the announcement of political policy

rent seeking market structure and growth we study the role of productive and unproductive entrepreneurship in economic growth in a setting where firms compete in both economic and political markets specifically firms compete for market share through cost reducing technological innovation and they vie for influence over government transfer policy through rent seeking activities we find that rent seeking affects growth in two ways it allows firms to ignore economic competition leading to less innovation and it alters the number of firms that are supported in equilibrium the former effect is negative while the latter is ambiguous we show how these effects depend on various characteristics of economic and political markets

appropriation violent enforcement and transaction costs a critical survey this paper focuses on the extension of transaction costs to appropriative activity and coercive power in the property rights approach it has been argued that including the costs of appropriation and violent enforcement in transaction costs is based on the assumption that coaseian bargaining can be extended to any institutional scenario i e voluntary as well as coercive exchange however voluntary transactions cannot capture the logic of coercive power this means that the assumption of an efficient political market is not valid and that the political coase theorem lacks the logical consistency to provide a cornerstone for political theory

the effect of cash flow forecasts on accrual quality and benchmark beating when analysts provide forecasts of both earnings and operating cash flow they also implicitly provide a forecast of total operating accruals we posit that this increases the transparency and the expected costs of accrual manipulations used to manage earnings as a consequence we predict and find that accrual quality improves and firms propensity to meet or beat earnings benchmarks declines following the provision of cash flow forecasts we also predict and find that firms turn to other benchmark beating mechanisms such as real activities manipulation and earnings guidance in response to the provision of cash flow forecasts

transaction costs institutional design and the separation of powers abstract the internal organization of the government can be used as a constraint on the capture of political decision makers in a setting where multiple interest groups try to influence policy outcomes centralization i e the choice of a single agency dealing with all interest groups is costly because it induces a better coordination of their influences the choice of specialized agencies is better because it increases the overall transaction costs of capture making agencies more immune to capture by interest groups more generally we discuss how an institutional design relying on separation of powers among specialized agencies may improve policy outcomes

the economics of special interest politics the case of the tariff this paper investigates the interaction of politicians and special interest lobbies the goal is to model the equilibrium levels of redistributive policies such as taxes subsidies tariffs and regulatory decisions the model is applied throughout to the setting of tariffs by contributing to political campaigns special interest lobbies generate economic returns higher tariffs generate revenue for import competing industries through higher product prices higher milk support prices raise dairy farm income and so forth the lobby invests to maximize these net economic returns in evaluating their chances of election politicians weigh the favorable effects of special interest money against the unfavorable association with the lobby and the social cost of the redistributive policy section i explores the lobby s problem it describes a formalization of mancur olson s discussion of the voluntary provision of public goods and optimal contributions by lobbies to political campaigns section ii describes determination of the equilibrium tariff positions of each politician in a political campaign

a policy preference function for government intervention in the u s wheat market this paper estimates a policy preference function that explains the government s choices of target prices government held wheat stocks and public wheat research funding the policy preference function depends on producers surplus consumers surplus and budget expenditures an important innovation in this paper is the inclusion of interactions between public research expenditures and other public policy variables results indicate that the government places a premium of 25 to 45 on the welfare of wheat producers of relative to budget expenditures while wheat consumers welfare is discounted as much as 50 relative to budget expenditures the purpose of this paper is to provide an explanation of government commodity programs stock accumulations and research expenditures in the u s wheat sector the explanation is based on a policy preference function ppf that depends on producers surplus consumers surplus and budget expenditures it is assumed that target prices reductions in or additions to government stocks and public research expenditures are chosen to maximize the policy preference function the central contribution of the paper is the estimation of a function that is consistent with the observed government interventions in the u s wheat market that is the paper explains the observed target prices government sales and public research expenditures as rational behavior by a government which seeks to maximize the estimated policy preference function the approach in this paper is based on the political interest group theories of peltzman and becker applications of these ideas to agriculture include rausser and freebairn s description of the beef industry gardner s 1985 analysis

takings compensation and equal treatment for owners of developed and undeveloped property this article constructs an economic model of government takings in which some property owners develop their land earlier than others because it is efficient for the government to take undeveloped land before developed land uncompensated takings will give landowners an incentive to develop their property early in order to reduce the risk of government appropriation this overdevelopment incentive can be countered and efficiency thereby restored if landowners are appropriately compensated when their property is taken or if equal treatment is afforded to owners of developed and undeveloped land however when the government responds to political pressure a judicial compensation requirement will often lead to less government land use regulation than is efficient in contrast a judicial equal treatment requirement can elicit efficient development and regulatory decisions

managing sales surprise the role of operational slack and volume flexibility abstract investors use sales surprise or revenue surprise the degree to which actual sales exceed expected sales as an important component of firm valuation rapidly scaling operations in the short run to meet higher than expected demand however could increase adjustment costs and lower efficiency thereby lowering performance operational slack excess capacity internally in the firm and longer cash conversion cycles externally in the supply chain and volume flexibility could help mitigate the negative effect of sales surprise on firm performance based on a sample of 1286 firms representing 38 473 firm quarter observations from 2003 to 2013 and using fixed effects regression the proposed relationships except for mitigating effects of internal operational slack or excess capacity measured as standardized industry adjusted sales to ppe ratio are supported for short term performance roa findings are robust to long term firm performance outcomes tobin s q and market to book ratio to controlling for autoregressive effects of past sales surprise alternate proxies for firm size squared term specification for slack an alternate forecasting method for sales surprise and controlling for inventory efficiency

parent firm performance across international joint venture life cycle stages the benefits that firms obtain from investing in international joint ventures ijvs can be reinforced or reduced by the management of later stages of collaboration this paper presents an analysis of the shareholder wealth effects of ijv formation and five types of ijv termination the empirical findings challenge common assumptions in the ijv literature contrast prior evidence on the performance implications of market entry and exit through acquisitions and divestitures and demonstrate the value of integrating ijv life cycle stages in future research

self regulation taxation and public voluntary environmental agreements an increasingly popular instrument for solving environmental problems is the public voluntary agreement va in which government offers technical assistance and positive publicity to firms that reach certain environmental goals prior papers treat such agreements as a superior low cost instrument that can be used to preempt a threat of traditional inefficient regulation we present a more general model in which public vas may instead be weak tools used when political opposition makes environmental taxes infeasible we explore the conditions under which taxes public vas and unilateral industry actions are to be expected and the welfare implications of the various instruments notably we also show that welfare may be reduced by the introduction of public vas 2002 elsevier b v all rights reserved

earnings management to avoid earnings decreases and losses this paper provides evidence that firms manage reported earnings to avoid earnings decreases and losses specifically in cross sectional distributions of earnings changes and earnings we lind unusually low frequencies of small decreases in earnings and small losscs and unusually high frequencies of small increases in earnings and small positive income we find evidence that two components of earnings cash flow from operations and changes in working capital are used to achieve increases in earnings we present two theories based on stakeholder use of information processing heuristics and prospect theory about the motivation for avoidance of earnings decreases and losses

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

explaining price policy bias in agriculture the calculus of support maximizing politicians a model is developed to explain observed patterns of policy intervention in agriculture we analyze the interaction between political support seeking politicians and supportsupplying citizens society consists of a rural and urban group we determine the effects on transfers of relative group size disparities in income endowments between groups and the deadweight loss of redistribution the framework advanced is an alternative to that of the interest group model and is used to explain for example why the export sectors in developing countries are taxed more and why the united kingdom is less adamant for higher price supports than germany

allocation of goods by lottery i introduction many goods such as hunting permits oil drilling leases cellular telephone licenses and rights to fishing berths as well as some buds such as the military draft jury duty and who is to be thrown overboard on a sinking life raft are or have been allocated by lotteries in neo classical welfare economics the random distribution of property rights does not affect allocative efficiency as long as transferability is allowed and the transactions costs are non prohibitive lottery allocations however are generally not transferable thus lottery allocations are inefficient since the goods are not ultimately allocated to the users who value them the most a number of authors such as aubert 1959 fienberg 1971 eckhoff 1989 and elster 1989 36 122 have argued that lotteries are chosen as the allocative instrument because it represents a fair or just means of allocating the goods rawls 1971 374 and eckhoff 1989 have noted that where it is impractical to divide the goods equally among those who desire them a lottery serves to satisfy both the requirement that the process be fair and that the allocation problem be resolved relatively costlessly elster 1989 113 however notes that lotteries are not the only fair allocation mechanism for example he points out that in jewish ethics the problem of allocating an indivisible good such as life saving resources is resolved by denying it to everyone even economists would probably prefer a lottery to this resolution the fairness hypothesis has a rich history in the old testament lotteries are deemed a fair way of allocating goods such as the inheritance of land numbers 33 54 lotteries are also used to allocate bads in perhaps the most famous biblical example of use of lots jonah was chosen by lot to be sacrificed to appease god who had brought a storm that threatened to wreck the ship the story goes that the lot selected jonah because he was shirking his duties elsewhere and should not have even been on the vessel jonah 1 6 1 notice that fair here is taken to mean just given this theological foundation it is not surprising that the lottery has seen frequent use in legal history as well one of the most interesting cases occurred in swedish and finnish trials in the 17th and 18th centuries in cases where a man was murdered by a mob lotteries were used to allocate punishment since the law required an eye for an eye no more and no less eckhoff says that if it was impossible to ascertain which of them had dealt the mortal blow the courts determined that one of the responsible parties be sentenced to death and that the person be selected by lottery 1989 19 a similar use of lotteries occurs in military history to deal with cases of mass desertion in roman armies every tenth man was executed decimated and the remainder pardoned in more modern times the lottery has been used in u s law 2 first of course is the use of a lottery to decide who shall sit on a jury a connection between fairness and lotteries however has also appeared in the common law in an 1842 case u s v holmes which has been discussed by fienberg 1971 eckhoff 1989 and elster 1989 a ship sank in a heavy storm and the lone surviving life raft was in grave danger of sinking the crew threw overboard fourteen male passengers in an effort to save the rest when back in port after being rescued a crewman named holmes the only crew member who had not disappeared upon arrival to port was brought to trial for the deaths of the passengers the court ruled that the non essential members of the crew should have been thrown overboard before any passengers and if that was not sufficient then passengers should have been selected by lot which is the fairest mode elster 1989 65 the fact that a human life presumably a large cost was at stake ex post did not affect the decision 3 the environmental economics literature contains a number of references to the social preferences for and benefits of lottery allocations

the influence on congress by the thrift industry abstract the investigation of the influential role of the thrift industry on congress as demonstrated by voting behavior on regulatory policy changes in the eighties is the focus of this study specifically we search for the degree to which the inadequately capitalized component of the thrift industry has captured the house of representatives we examine the influence on congress by the thrift industry using the votes by the house of representatives associated with three different legislative acts the garn st germain act the competitive equality banking act and the financial institutions reform recovery and enforcement act addressing the thrift crisis using a multi chotomous voting model we identify traditional public choice variables that could influence the probability of voting for legislation to capture the variation of the thrifts interests we consider a series of financial variables motivated by the thrift literature of failure prediction models these variables allow us to investigate the influences from the health of the congressional district s thrifts their asset composition characteristics and their reliance on regulatory forbearance

balancing environmental protection and energy production in the federal hydropower licensing process the u s federal energy regulatory commission ferc must balance environmental protection of riverine resources with the nation s growing demand for power production every time it issues a hydroelectric license this paper models the bureaucratic agency s decision making process in issuing these licenses data on nearly 500 hydro power licenses issued from 1983 to 2005 are utilized it is discovered that legislative and institutional constraints are by far the largest influences on ferc s regulatory decisions implying that if the current allocation of surface water in the united states is considered inefficient the most effective way to alter this allocation is by passing new legislation or by implementing institutional reform at ferc

interest group politics under majority rule abstract we develop a model of interest group politics in which the groups and coalitions that arise and the form of redistributive policies sought are jointly determined the model generates three key results first programs intended to reduce income inequality are more likely to involve direct payments than are programs that redistribute wealth across groups with similar incomes second nonequalizing redistribution is unlikely unless the various participants in the political process face significantly different political and economic costs of obtaining transfers third many policies that induce asymmetries among interest groups also impose significant deadweight costs stable nonequalizing redistribution will therefore tend to involve indirect and economically inefficient methods of transferring income

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

studying the role of political competition in the evolution of government size over long horizons here we argue for the use of cointegration and error correction analysis to combine economic factors that are nonstationary with political factors that are stationary into an empirical model of the evolution of public policy over long periods the approach is applied to disentangle the contributions of economics and politics to the evolution of public expenditure by the government of canada over 130 years political competition emerges as the primary political factor affecting government size

compensation for regulatory takings with a redistributive government richard epstein has argued that governments should pay compensation for regulatory actions that impose costs on a subset of society i develop a model in which there are two groups one of whom benefits from a regulation and one of whom bears the costs a potentially biased government sets the level of the regulation and also redistributes income across the two social groups via the tax system when taxes are nondistortionary the government chooses the efficient level of the regulation to maximize wealth and then uses the tax system to distribute this wealth according to its preferences if the government is forced to pay compensation for the costs of the regulation it simply undoes this via the tax and transfer system when taxes are distortionary societal wealth is monotonically decreasing in the degree of compensation to be paid so that the optimal level of compensation is zero

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

voluntary conservation of endangered species when does no regulatory assurance mean no conservation abstract voluntary conservation agreements are becoming increasingly important in implementing the endangered species act on private land we analyze when such agreements arise and what level of conservation they generate in the presence of uncertainty about future conservation benefits and irreversibility of habitat loss and species extinction our results suggest that the likelihood of an agreement and the resulting conservation levels depend on the background threat of regulation the cost advantage offered by voluntary agreements and the availability of assurances regarding future regulation under conditions likely to hold in practice conservation agreements that offer assurances may generate higher levels of conservation and higher net social benefits than agreements that do not offer assurances however the resulting level of conservation will not be optimal and may be lower than that attainable under regulation

donors and domestic policy makers two worlds in agricultural policy making in recent decades many developing countries have moved from taxing their agricultural sector to subsidizing it a phenomenon referred to as overshooting using ghana and uganda as case study countries this study aims to contribute to explaining this phenomenon by examining the role of policy beliefs the study is based on the advocacy coalition framework and relies on discourse analysis as analytical method in depth interviews with policy actors in both countries served as empirical basis a quantitative analysis of the transcripts was used to identify different discourse coalitions and a qualitative analysis was conducted to examine the discourses and identify their underlying policy beliefs the paper identified far reaching differences in the agricultural policy beliefs between domestic policy makers and donors regarding the question what does it actually take to develop small holder agriculture the evidence from this analysis highlights the role that divergent policy beliefs can play in influencing agricultural policy choices

does multinational activity displace trade kimberly a clausing using two panel data sets on the operations of u s multinational firms abroad and the operations of foreign multinational firms in the united states this article examines the empirical relationship between international trade and multinational activity the evidence supports the conclusion that multinational activity and trade are complementary activities particularly multinational activity and intrafirm trade this empirical result is consistent with the theoretical reasons one might expect a complementary relationship between the two activities and is also robust to different approaches and specifications jel f23 i introduction in recent years foreign direct investment fdi has become an increasingly important part of world integration flows of fdi have been increasing faster than trade flows which in turn have been growing faster than income 1 in addition multinational firms play a very large role in world trade for the united states 83 of exports in 1994 were either intrafirm shipments between multinational parents and their affiliates 36 or arms length trade between multinationals and unaffiliated buyers 47 2 although it is clear that multinational firms have an important role in world trade it is certainly less clear what the relationship is between production abroad and trade for multinational firms the popular press often assumes that multinational investment by u s firms replaces u s exports and in fact some economists have assumed that the rapid growth of foreign direct investment in recent years implies that multinational activity will eventually displace trade 3 this article examines the empirical relationship between multinational activity and trade and finds that there is evidence that multinational activity complements rather than displaces trade the article utilizes two panel data sets constructed from aggregate survey data published by the bureau of economic analysis bea the data vary by country and over time the first data set is used to study the relationship between u s exports and the activities of u s affiliates abroad this data set is constructed from data describing the operations of u s multinational firms in 29 host countries between 1977 and 1994 together with data on u s exports both intrafirm and arms length the second data set is used to study the relationship between u s imports and the activities of foreign affiliates operating in the united states it uses data describing operations in the united states by foreign affiliates of firms based in 29 home countries between 1977 and 1994 together with data on u s imports both intrafi rm and arms length most previous studies of this question have examined the relationship between multinational activity and trade for a cross section of countries by using data that also vary over time it is possible to explore more thoroughly the relationship between multinational activity and trade and how this relationship evolves it is also possible to control for fixed country effects that may be influencing the observed relationships previous studies have tended to focus on the relationship between outward multinational activity and exports this article looks as well at the relationship between inward multinational activity and imports finally this article considers the question of complementarity between multinational activity and trade in two ways in addition to looking at the relationship between the quantities of multinational activity and trade the article also studies complementarity much as one might think of complementarity in a demand study by considering cross price effects in particular the article includes an analysis of the relationship between price variables that measure the cost of multinational activity abroad and exports since the price of operating abroad is negatively related to exports this is further evidence of a complementary relationship between trade and multinational activity

separating economic from political influences on government decisions abstract the public interest theory is a poor predictor of government decisions relative to interest group theories but a sophisticated public interest theory is a more serious alternative to the former testing the sophisticated theory s predictions is problematic however when public interest is coincident with an interest group s interests a four step method is developed that disentangles public interest and interest group interests by separating economic from political incentives applying the method to the national forest service decisions about wilderness designations indicates whether interest groups were successful in influencing allocation decisions and whether allocation decisions were in the public interest

spatially uniform versus spatially heterogeneous compensation payments for biodiversity enhancing land use measures the importance of compensation payments for biodiversity enhancing land use measures has grown over the past decade particularly in connection with agri environmental policy given that both the costs and the benefits of biodiversity enhancing land use measures are subject to spatial variation the criterion of cost effectiveness calls for spatially heterogeneous compensation payments however when deciding whether to implement uniform or heterogeneous compensation payments the regulator has to compare the disadvantage of uniform payments in terms of cost effectiveness with the disadvantages of spatially heterogeneous payments to help resolve this issue this paper provides a simple ecological economic model that allows the reduced cost effectiveness associated with uniform payments for biodiversity enhancing land use measures to be assessed for different types of benefit and cost functions

trade liberalization comparative advantage and scale economies stock market evidence from canada abstract the canada united states free trade agreement fta provides an excellent opportunity to analyze the impact of a comprehensive trade liberalization in this paper a stock market event study is employed to capture investors expectations about the consequences of this agreement for manufacturing firms in canada the primary question addressed is whether abnormal stock market returns corresponding to news about the fta are consistent with hypotheses based on comparative advantage and economies of scale the results indicate that both comparative advantage and scale economies played a role in determining investors perceptions of the impact of the fta

alliances in international governmental organizations regional trade agreement formation and multinational enterprise regionalization strategy abstract drawing from political science alliance theories we explain why countries are likely to enter regional trade agreements we argue that the probability that this will happen is higher if the countries are allies in the same international governmental organizations igos as such alliances can help build trust and reduce political risk our results show that igo scope and also partner reliability and influence in the igo network play important roles our findings provide guidance to multinational enterprises in formulating regionalization strategies

the political economy of farmland ownership regulations and land prices one of the most ubiquitous forms of agricultural regulation is a restriction on farmland ownership one canadian example of a farmland ownership restriction is the saskatchewan farm security act fsa passed in 1974 the purpose of this article is to explain using a political economy framework why the fsa was implemented and to estimate the effect of the fsa on saskatchewan farmland values a present value pv model is used to estimate the relationship between land values rents and the regulation the hausman endogeneity test reveals that the regulation variable is endogenous with the land price the sign of the regulation variable is negative which fits with the theory i e the more stringent the regulation the lower the land value we estimate that the regulation lowered saskatchewan farmland prices by an average of 4 to 34 us acre depending on whether ordinary least squares ols or two stage least squares tsls is employed in the estimation over the period of 1974 2001