risk aversion and bandwagon effect in the pivotal voter model the empirical literature on the effects of opinion polls on election outcomes has recently found substantial evidence of a bandwagon effect defined as the phenomenon according to which the publication of opinion polls is advantageous to the candidate with the greatest support this result is driven in the lab experiments by a higher turnout rate among the majority than among the minority such evidence is however in stark contrast with the main theoretical model of electoral participation in public choice the pivotal voter model which predicts that the supporters of an underdog candidate participate at a higher rate given the higher probability of casting a pivotal vote this paper tries to reconcile this discrepancy by showing that a bandwagon effect can be generated within the pivotal voter model by concavity in the voters utility function which makes electoral participation more costly for the expected loser supporters given the strict relationship between concavity and risk aversion the paper also establishes the role of risk aversion as a determinant of bandwagon

voter turnout and fiscal policy abstract in this paper we examine whether shocks in voting costs can impact elected representatives quality defined as the capacity to fund projects at the lowest cost using data on french municipalities and local variations in seasonal infections incidence as a shock on voting cost we estimate that higher incidence lowers voter turnout increases subsidies obtained by a municipality decreases harmful financial decisions and increases the municipality s investment in infrastructure we present a model where these predictions would hold in particular for municipalities with a high base level of turnout

can falling supply explain the rising return to college for younger men a cohort based analysis although the college high school wage gap for younger u s men has doubled over the past 30 years the gap for older men has remained nearly constant in the united kingdom and canada the college high school wage gap also increased for younger relative to older men using a model with imperfect substitution between similarly educated workers in different age groups we argue that these shifts reflect changes in the relative supply of highly educated workers across age groups the driving force behind these changes is the slowdown in the rate of growth of educational attainment that began with cohorts born in the early 1950s in all three countries

compulsory voting turnout and government spending evidence from austria abstract we study a unique quasi experiment in austria where compulsory voting laws are changed across austria s nine states at different times analyzing state and national elections from 1949 to 2010 we show that compulsory voting laws with weakly enforced fines increase turnout by roughly 10 percentage points however we find no evidence that this change in turnout affected government spending patterns in levels or composition or electoral outcomes individual level data on turnout and political preferences suggest that these results occur because the impacts of compulsory voting on turnout are larger among those who are non partisan who have low interest in politics and who are uninformed

an empirical assessment of the residual income valuation model abstract this paper provides an empirical assessment of the residual income valuation model proposed in ohlson ohlson j a 1995 earnings book values and dividends in security valuation contemporary accounting research 11 661 687 we point out that existing empirical research relying on ohlson s model is similar to past research relying explicitly on the dividend discounting model we establish that the key original empirical implications of ohlson s model stem from the information dynamics that link current information to future residual income our empirical results generally support ohlson s information dynamics however we find that our empirical implementation of ohlson s model provides only minor improvements over existing attempts to implement the dividend discounting model by capitalizing short term earnings forecasts in perpetuity

out of school and out of work youth in latin america a persistent problem in a decade of prosperity this paper explores the persistent shares of youth that are out of school and out of work in latin america with special attention to those in the fifteen to eighteen age range according to our calculations 18 5 percent of latin american youth in this age group 9 4 million individuals are currently neither in school nor working we present the patterns of the evolution of this group in eighteen countries across the region identifying the set of microeconomic and aggregate variables that are correlated with their dynamics we explore the relationship with the household s socioeconomic characteristics and with the structure and evolution of labor markets we identify the links with the schooling system and school dropout patterns and we verify whether the group responds to changes in the environment including overall gdp growth or to economic shocks we also explore the possibility that they are simply a transient demographic phenomenon

skill biased technological change and rising wage inequality some problems and puzzles the recent rise in wage inequality is usually attributed to skill biased technical change sbtc associated with new computer technologies we review the evidence for this hypothesis focusing on the implications of sbtc for overall wage inequality and for changes in wage differentials between groups a key problem for the sbtc hypothesis is that wage inequality stabilized in the 1990s despite continuing advances in computer technology sbtc also fails to explain the evolution of other dimensions of wage inequality including the gender and racial wage gaps and the age gradient in the return to education

turnout across democracies world democracies widely differ in legislative executive and legal institutions different institutional environments induce different mappings from electoral outcomes to the distribution of power we explore how these mappings affect voters participation in an election we show that the effect of such institutional differences on turnout depends on the distribution of voters preferences we uncover a novel contest effect given the preferences distribution turnout increases and then decreases when we move from a more proportional to a less proportional power sharing system turnout is maximized for an intermediate degree of power sharing moreover we generalize the competition effect common to models of endogenous turnout given the institutional environment turnout increases in the ex ante preferences evenness and more so when the overall system has lower power sharing these results are robust to a wide range of modeling approaches including ethical voter models voter mobilization models and rational voter models

does forced voting result in political polarization this paper estimates the effects of the compulsory voting legislation on individuals political orientations though a regression discontinuity framework the identification comes from brazil s dual voting system voluntary and compulsory whose exposure is determined based on citizen s date of birth using self collected data we find that compulsory voting legislation has sizable effects on individuals political preferences making them more likely to identify with a political party and to become extreme oriented

changes in returns to education in latin america the role of demand and supply of skills using micro data for the urban areas of argentina brazil chile colombia and mexico the authors document trends in men s returns to education during the 1980s and the 1990s and estimate the role of supply and demand factors in explaining the changes in skill premia they propose a model of demand for skills with three production inputs corresponding to workers with primary secondary and university level education further the authors demonstrate that an unprecedented rise in the supply of workers having completed secondary level education depressed their wages relative to workers with primary level education throughout latin america this supply shift was compounded by a generalized shift in the demand for workers with tertiary education

strategic voting when participation is costly abstract we study a general multiparty model of plurality rule elections with costly participation and prove that strategic voting that is situations in which some voters abandon their most preferred alternative and vote strategically for the serious contender they dislike less may emerge in equilibrium just like when participation is costless compulsory palfrey 1989 this qualifies opposite claims made in more confined setups e g arzumanyan and polborn 2017 and establishes that duverger s psychological effect is present in a much larger set of cases than currently believed

mandate and paternalism a theory of large elections we propose a game theoretic costly voting model of large elections that incorporates the assumption that mandate matters this innovation is motivated by empirical evidence that us representatives with larger victory margins on average vote in a more partisan manner if voters are paternalistic this new model predicts strictly positive limiting turnout rates as the population grows arbitrarily large the model also preserves stylized comparative statics results of costly voting models including the underdog effect and the competition effect finally we develop an innovative computational strategy to solve the model for large finite electorates and show that our results are not only qualitatively but also quantitatively relevant

how trading institutions affect financial market performance some laboratory evidence i introduction trading institutions vary considerably across contemporary financial markets 1 but most can be classified into one of two basic types the continuous double auction da allows traders to submit public offers to buy or to sell and to accept other traders offers at any moment in time the double auction institution offers immediacy but non uniform transaction prices the other basic trading institution the clearinghouse ch gathers offers and clears them at a unified price at a pre specified time it sacrifices immediacy for uniform transaction prices 2 the two types of institutions have co existed and evolved for centuries but now are emerging in new electronic versions market participants and policy makers would like to know which institution or variant or combination is most efficient but theoretical and empirical work to date provides little guidance this paper reports on a series of laboratory asset markets experiments designed to compare variants of the double auction and clearinghouse trading institutions the markets are small usually with eight or nine traders but the traders are profit motivated and experienced with the trading institutions the traded asset has uncertain market value and traders receive useful but inconclusive private information they can only learn the asset s true value during the course of trade laboratory markets offer several advantages for empirical study of financial market institutions first private information is observable even controllable in the laboratory and therefore the investigator can directly measure market efficiency 3 second the complexity of the environment can be varied systematically in the laboratory and its effects on market performance can be separated from the effects of the market institution and other forces finally the market institution itself is controllable in the laboratory so it is possible to make valid causal inferences on how the market institution shapes market performance i begin with a survey of relevant literature and other preliminaries in the rest of this section section ii outlines the laboratory procedures the creation of trading environments of varying complexity the electronic implementation of the clearinghouse and double auction trading institutions the computation of theoretical benchmark prices and allocations and the measurement of market performance section iii collects the results following an illustrative account of a double auction trading period and a clearinghouse trading period i use descriptive statistics to summarize market performance in each of the thirty nine experiments the main conclusions are based on statistical comparisons of market performance across alternative market institutions the clearinghouse institution does surprisingly well it delivers greater market depth than the double auction discovers prices at least as efficiently and produces final allocations almost as efficient as the double auction the main institutional variants examined in this paper concern the amount of information made public regarding order placement orderflow the data suggest that public display of the orderflow enhances double auction efficiency but may impair clearinghouse efficiency a study of trading volume shows higher volume in the double auction in both institutions volume increases when important private news arrives and when the trading period is about to end the paper concludes with a brief summary and discussion of the results a companion paper friedman 1991 considers the effects of awarding various privileges to some but not all traders copeland and friedman 1987 1991 provide useful background information on laboratory procedures and computerized double auction markets instructions for the current experiments are available on request the need for empirical work a skeptic might argue that empirical work is unnecessary the mere fact that the double auction and clearinghouse institutions both persist in major financial markets implies that both are highly efficient because a more efficient institution would displace less efficient institutions

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

growth and value hybrid valuation model based on mean reversion abstractthis article proposes a novel valuation model growth and value hybrid model to estimate the stock price this proposed model combines the essence of the asset based approach the income based approach and the principle of mean reversion to develop the theoretical closed form formula consisting of three coefficients value coefficient value support coefficient and growth coefficient regression analysis is employed to fit market data to determine these coefficients moreover this study proposes the double sorting method to build the quantile regression models of the formula to estimate the stock price at a specific quantile the results show that the predictive capability of the hybrid valuation model is superior to the model without using value support coefficient which supports the assumption that the pbr is not associated with the roe when the roe is less than a threshold in different time periods of the stock market no significant difference exists on the value support coefficient howe

shareholder value efficiency in european banking abstract this paper advances the studies of hughes j p lang w w mester l j moon c g pagano m s 2003 do bankers sacrifice value to build empires managerial incentives industry consolidation and financial performance journal of banking and finance 27 417 447 by developing a new measure of bank performance which we refer to as shareholder value efficiency a bank producing the maximum possible economic value added eva given particular inputs and outputs is defined as shareholder value efficient this new efficiency measure is estimated using the stochastic frontier method focussing on the french german italian and uk banking systems over the period 1997 2002 and includes both listed and non listed banks we find that european banks are on average 36 shareholder value inefficient shareholder value efficiency is found to be the most important factor explaining value creation in european banking whereas cost and profit efficiency only have a marginal influence

a theory of participation in elections we analyze a model of participation in elections in which voting is costly and no vote is pivotal ethical agents are motivated to participate when they determine that agents of their type are obligated to do so unlike previous duty based models of participation in our model an ethical agent s obligation to vote is determined endogenously as a function of the behavior of other agents our model predicts high turnout and comparative statics that are consistent with strategic behavior jel d72

does short selling amplify price declines or align stocks with their fundamental values critics of short selling argue that short sellers amplify price declines by targeting firms with falling prices in an unwarranted manner contrary to this viewpoint we find that increases in short interest for firms following a price decline are associated with measures of overpricing based on financial statement analysis our results extend to short selling activity following marketwide declines we also find evidence consistent with the profitability of short selling following price declines being driven by valuation based positions overall our findings suggest short sellers primarily undertake valuation based strategies following price declines and have implications for regulators limiting short selling following price declines is likely to impede efficient price discovery this paper was accepted by mary barth accounting

group decision making in the shadow of disagreement abstract a model of group decision making is studied in which one of two alternatives must be chosen while agents differ in their preferences over alternatives everybody prefers agreement to disagreement our model is distinguished by three features private information regarding valuations differing intensities in preferences and the option to declare neutrality to avoid disagreement there is always an equilibrium in which the majority is more aggressive in pushing its alternative thus enforcing their will via both numbers and voice however under general conditions an aggressive minority equilibrium inevitably makes an appearance provided that the group is large enough such equilibria invariably display a tyranny of the minority the increased aggression of the minority always outweighs their smaller number leading to the minority outcome being implemented with larger probability than the majority alternative we fully characterize the asymptotic behavior of this model as group size becomes large and show that all equilibria must converge to one of three possible limit outcomes

nuclear decommissioning costs the impact of recoverability risk on valuation abstract mounting nuclear plant decommissioning costs and utility deregulation focused attention on accounting for decommissioning liabilities fasb s exposure draft 158 b proposes balance sheet recognition of the projected future decommissioning cost liability at initial plant commission we expect market valuation of each dollar of decommissioning cost apportioned to utilities to vary with utility specific factors related to the probability of cost recovery via rates we find a more negative decommissioning cost firm value association for utilities with higher business or financial risk also equity value is significantly associated with total decommissioning cost across all nuclear units in which a utility has ownership interest

the downsian voter meets the ecological fallacy this paper presents evidence that voter participation does not depend on the probability that one vote is decisive an extensive summary of the empirical participation literature is provided which shows that most but not all studies have found that turnout in an electoral district is higher when the race is closer individual level vote regressions for the 1979 and 1980 canadian national elections are estimated using objective measures of closeness as opposed to self reported measures the main finding is that a citizen is no more likely to vote in a close election than in a lands lide election district level turnout regressions for the same elections are also estimated and a significant relation between closeness and turnout is observed this suggests that aggregation bias may generate a spurious closeness turnout relation in district level regressions

regional labor markets and the determinants of wage inequality from 1972 to 1990 the united states experienced the largest increase in wage inequality of any developed country the spread in log wages between the 90th and 10th percentiles of the male wage distribution increased by about 60 points and inequality increased within virtually every demographic or skill category of the labor force see chinhui juhn et al 1993 various explanations have been offered including changes in the relative demand for skill intensive goods international trade immigration of less skilled workers and increased labor force participation of women yet attempts to quantify the relative importance of these factors have not met with much success this leaves skill biased technical change as the residual claimant that rationalizes the data this paper uses regional differences in the evolution of wage inequality to provide new evidence on the determinants of relative wages using a model of factor demand in geographic markets i isolate contributions of i changing skill ratios in the labor force ii increased participation of women iii technical change and iv changes in the industrial composition of labor demand the data indicate that changing skill ratios and women s labor supply have affected the wages of low skilled men in the west the data indicate that increased immigration of less skilled hispanic and asian workers has adversely affected the wages of natives causing a greater increase in inequality there than in any other region of the country i modeling wage inequality in regional markets

the accounting identity trap identification under stock and flow rank deficiency abstractempirical research relying on inputs from published company financial statements ignore the fact that the observed accounting data matrix has been purposefully designed to be rank deficient by means of articulation between stocks and flows this inherent feature of the data generating process suggests structural non identification when both stocks and flows appear in the design matrix and a constraint is required to identify parameters much financial research has fallen into this accounting identity trap and routinely employs implicit constraints to enable estimation albeit without acknowledgement of the constraints hence the misleading inferences this article elucidates the problem of parameter identification under stock and flow rank deficiency using existing applications on equity pricing the focus is on the interpretation of slope coefficients that must be anchored on economically defensible parameter constraints

market efficiency bounded rationality and supplemental business reporting disclosures the aicpa special committee on financial reporting has urged disclosure of relevant forward looking information on risks and opportunities to supplement conventional financial statements we conduct a laboratory market experiment to assess the effects of such disclosures on capital allocation decisions we develop two sets of competing hypotheses regarding how capital markets react to supplemental disclosures one set is based on the assumption of semi strong market efficiency while the other posits that the bounded rationality of individual traders leads to inefficient market prices we find that explicit disclosure of management s best estimate of an uncertain quantity improves market efficiency even though this disclosure is redundant with information in financial statements second we find disclosure of an upper bound of management s estimate has the potential to bias security prices upward while informationally equivalent disclosure of both upper and lower bounds removes this bias these results suggest that experimental market reactions to these supplemental disclosures are inconsistent with market efficiency supplemental analyses of individuals price predictions and trading behavior support our conclusion that inefficiencies are at least partially attributable to individual information processing biases

voluntary voting costs and benefits we compare voluntary and compulsory voting in a condorcet type model in which voters have identical preferences but dierential information with voluntary voting all equilibria involve sincere voting and positive participation thus in contrast to situations with compulsory voting there is no con ict be tween strategic and sincere behavior when voting is costless voluntary voting is welfare superior to compulsory voting even when voting is costly participa tion rates are such that in the limit the correct candidate is elected that is information fully aggregates

should i stay or should i go career choices for young workers in latin america labor market institutions shape the return to workers skills they define the incentives of firms and workers to invest in general and specific skills affecting the returns to experience and tenure this paper presents an empirical assessment of this hypothesis we take advantage of rich administrative data from brazil and chile two countries with different regulatory frameworks we focus on young workers as they face to a greater extent the trade off between accumulating general or specific skills the analysis is motivated by a simple conceptual framework from which we derive empirical predictions it takes into account the potential endogeneity of occupational choices while allowing for heterogenous returns to tenure and experience we find positive average returns to both dimensions in both countries with larger returns to tenure in brazil and larger returns to experience in chile this is consistent with the original conjecture as the more rigid labor market legislation in brazil encourages firms to carry out additional investments in young workers s specific skills chile s institutions on the contrary promote the acquisition of general skills we further examine how these returns differ by educational attainment an important policy consideration in the region and find that more educated workers in both countries face larger returns to experience and tenure relative to their less educated counterparts

the paradox of voter participation a laboratory study it is widely believed that rational choice theory is grossly inconsistent with empirical observations about voter turnout we report the results of an experiment designed to test the voter turnout predictions of the rational choice palfrey rosenthal model of participation with asymmetric information we find that the three main comparative statics predictions are observed in the data the size effect whereby turnout goes down in larger electorates the competition effect whereby turnout is higher in elections that are expected to be close and the underdog effect whereby voters supporting the less popular alternative have higher turnout rates we also compare the quantitative magnitudes of turnout to the predictions of nash equilibrium we find that there is undervoting for small electorates and overvoting for large electorates relative to nash equilibrium these deviations from nash equilibrium are consistent with the logit version of quantal response equilibrium which provides a good fit to the data and can also account for significant voter turnout in very large elections

the polarization of the u s labor market this paper analyzes a marked change in the evolution of the u s wage structure over the past fifteen years divergent trends in upper tail 90 50 and lower tail 50 10 wage inequality we document that wage inequality in the top half of distribution has displayed an unchecked and rather smooth secular rise for the last 25 years since 1980 wage inequality in the bottom half of the distribution also grew rapidly from 1979 to 1987 but it has ceased growing and for some measures actually narrowed since the late 1980s furthermore we find that occupational employment growth shifted from monotonically increasing in wages education in the 1980s to a pattern of more rapid growth in jobs at the top and bottom relative to the middles of the wage education distribution in the 1990s we characterize these patterns as the u201cpolarization u201d of the u s labor market with employment polarizing into high wage and low wage jobs at the expense of middle wage work we show how a model of computerization in which computers most strongly complement the non routine abstract cognitive tasks of high wage jobs directly substitute for the routine tasks found in many traditional middle wage jobs and may have little direct impact on non routine manual tasks in relatively low wage jobs can help explain the observed polarization of the u s labor market this abstract was borrowed from another version of this item

concurrent elections and turnout causal estimates from a german quasi experiment conventional wisdom suggests that scheduling elections concurrently with other contests increases turnout however causal empirical evidence in favor of this claim is scarce at best moreover it is a priori unclear whether theory would predict a higher turnout if two low office elections are combined instead of a combination of a low office election and a major electoral race using a quasi experiment and a difference in differences estimation approach at the german municipality level i provide evidence that combining two low office elections significantly increases turnout

accounting earnings and future economic rents an empirical analysis abstract this study reexamines competition cost structure and growth opportunities effects on earnings response coefficients and extends this literature in several ways first it presents a more refined theoretical motivation for investigating competition and cost structure effects second it introduces new economic factor proxies that confirm prior findings with respect to competition but differ from prior findings with respect to cost structure and growth opportunities overall the evidence suggests that accounting earnings reflect information about future economic rents generated by firms assets in place the evidence also suggests contrary to prior studies that accounting earnings are not very informative about firms growth opportunities

skill premium labor supply and changes in the structure of wages in latin america earnings inequality declined rapidly in argentina brazil and chile during the 2000s a reduction in the experience premium is a fundamental driver of declines in upper tail 90 50 inequality while a decline in the education premium is the primary determinant of the evolution of lower tail 50 10 inequality relative labor supply is important for explaining changes in the skill premiums relative demand trends favored high skilled workers during the 1990s shifting in favor of low skilled workers during the 2000s changes in the minimum wage and more importantly commodity led terms of trade improvements are key factors behind these relative skill demand trends

an optimal voting procedure when voting is costly abstract we study optimal dynamic voting procedures when voting is costly for a highly stylized specification of our model with private values two alternatives and binary equally likely types we show the optimality of a voting procedure that combines two main elements i there is an arbitrarily chosen default decision and abstention is interpreted as a vote in favor of the default ii voting is sequential and is terminated when a supermajority requirement which declines over time is met we show the optimality of such a voting procedure by arguing that it is first best that is it maximizes welfare when equilibrium constraints are ignored and by showing that individual incentives and social welfare are sufficiently aligned to make a first best procedure incentive compatible we also provide counterexamples where no first best procedure is incentive compatible when voters binary types are not equally likely

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

evaluating a simple method for estimating black white gaps in median wages racial differences in wage rates are important measures of economic inequality among races because for almost all individuals labor income constitutes the most important component of lifetime income as a consequence the prices at which individuals may sell their time provide vital infornation about the distribution of welfare and economic success however we only observe prices when market transactions occur and thus we only observe wage rates for individuals who are employed since the wages of employed workers are not randomly sampled from the distribution of potential wages it is difficult to draw inferences concerning racial gaps in potential wages from data on observed wage rates richard butler and james heckman 1977 raised this issue in the context of assessing the impact of government policies on racial income inequality charles brown 1984 james smith and finis welch 1989 and amitabh chandra 2000 also examine the extent of racial differences in participation rates and the impact of these differences on measures of racial wage and income gaps this topic remains salient in part because employment rates among working age black males remain significantly below corresponding rates for whites neal and johnson 1996 estimated racial gaps in median wages among men by imputing wages of zero for all men in a particular crosssection who report that they have not worked at all during the survey period under a specific assumption concerning the distribution of missing wages this procedure yields consistent estimates of the black white gap in median wages conditional on observed characteristics below we spell out this assumption and use panel data to investigate the extent to which it may be violated in cross section wage analyses our results suggest that imputing wages of zero for unemployed individuals may provide a reasonable way to estimate median wage regressions among men

when costly voting is beneficial abstract we present a costly voting model in which each voter has a private valuation for their preferred outcome of a vote when there is a zero cost to voting all voters vote and hence all values are counted equally regardless of how high they may be by having a cost to voting only those with high enough values would choose to incur this cost we show that by adding this cost welfare may be enhanced even when the cost of voting is wasteful such an effect occurs when there is both a large enough density of voters with low values and the expected value of voters is high enough

earnings as an explanatory variable for returns in this paper we investigate whether the level of earnings divided by price at the beginning of the stock return period is relevant for evaluating earnings returns associations the primary model motivating this research relies on the idea that book value owners equity and market value are both stock variables indicating the wealth of the firm s equity holders the related flow variables after adjusting for dividends are respectively earnings divided by price at the beginning of the return period a p 1 and market returns it then follows that earnings divided by beginning of period price should be associated with stock returns although models based on a relation between market value and book value are used occasionally in the accounting research literature see for example landsman 1986 harris and ohlson 1987 and barth

latin america s social policy challenge education social insurance redistribution abstract long regarded as a region beset by macroeconomic instability high inflation and excessive poverty and inequality latin america has undergone a major transformation over the last 20 years the region has seen improved macroeconomic management and substantial and sustained reductions in poverty and inequality in this paper we argue that social policy including human capital and education social insurance and redistribution need special attention if achievements of the last two decades are to be sustained and amplified starting in the mid 1990s many governments in the region introduced a variety of programs including noncontributory pensions and health insurance and cash transfers targeted to the poor social spending in latin america increased sharply these policies have been widely praised and we believe they have resulted in substantial improvements in the lives of the poor in the region however a more nuanced view shows some worrisome trends moving forward we believe it is nec

public information and electoral bias abstract we present a theory of voting that predicts that elections are more likely to be close and voter turnout is more likely to be high when citizens possess better public information about the composition of the electorate these findings suggest that providing more information to potential voters about aggregate political preferences e g through pre election polls or expert forecasts may undermine the democratic process our analysis reveals that if the distribution of political preferences is common knowledge then the unique type symmetric equilibrium leads to a stark neutrality result in which each alternative is equally likely to win the election by contrast when citizens are ignorant about the preference distribution the majority is more likely to win the election and expected voter turnout is lower welfare is therefore unambiguously higher when citizens possess less information about the preference distribution

the relevance of the value relevance literature for financial accounting standard setting another view this paper explains that value relevance research assesses how well accounting amounts reflect information used by equity investors and provides insights into questions of interest to standard setters a primary focus of financial statements is equity investment other uses of financial statement information such as contracting do not diminish the importance of value relevance research value relevance questions can be addressed using extant valuation models value relevance studies address econometric issues that otherwise could limit inferences and can accommodate and be used to study the implications of accounting conservatism r 2001 elsevier science b v all rights reserved jel classification m41 m44 g12

earnings metrics information processing and price efficiency in laboratory markets an enduring issue in financial reporting is whether and how salient summary measures of firm performance earnings metrics affect market price efficiency in laboratory markets we test the effects of salient earnings metrics which vary in how they combine persistent and transitory elements on investor information search beliefs about value offers to trade and market price efficiency we find that including transitory elements in salient earnings metrics causes traders to search unnecessarily for further information about these elements and to overestimate their effect on fundamental value relative to a rational benchmark in contrast separately displaying persistent elements in earnings increases the accuracy of traders value estimates prices generally reflect traders beliefs about value and prices are most efficient when transitory elements are excluded from earnings metrics entirely our study contributes to research on salience effects in financial reporting by showing that including transitory elements in salient earnings metrics causes inefficient information search and biased beliefs about value that can aggregate to affect market prices we also contribute to research in experimental markets by showing that redundant disclosure is not always beneficial redundant disclosure of transitory earnings elements in particular appears to have negative consequences for investor behavior and market efficiency

the effect of short selling on bubbles and crashes in experimental spot asset markets a series of experiments illustrate that relaxing short selling constraints lowers prices in experimental asset markets but does not induce prices to track fundamentals we argue that prices in experimental asset markets are influenced by restrictions on short selling capacity and limits on the cash available for purchases restrictions on short sales in the form of cash reserve requirements and quantity limits on short positions behave in a similar manner a simulation model based on delong et al 1990 generates average price patterns that are similar to the observed data asset market bubbles are persistent deviations of prices from fundamentals to the extent that bubbles exist they can influence investment levels and the allocation of capital and thereby have considerable economic effects in recognition of their potential importance the question of the existence and pervasiveness of bubbles has been a focus of extensive empirical investigation see e g shiller 1981 blanchard and watson 1982 diba and grossman 1988 and west 1988 these studies yield mixed results regarding the empirical relevance of bubble phenomena one source of the differences in conclusions may be that because the fundamental value of the assets cannot be observed tests of the presence of bubbles are joint tests with the particular specification of the process guiding the evolution of fundamentals also being tested the availability of short selling is widely believed to make bubble formation less likely one rationale for such a belief is the notion that the cause of asset market bubbles is a constraint on the ability of traders to speculate on future downward price movements see e g miller 1977 jarrow 1980 diamond and verrecchia 1987 or figlewski and webb 1993 in the absence of short sales traders may sell only the shares in their portfolios the availability of short sales relaxes this constraint in this paper we study empirically the effect of allowing short sales on both the incidence and magnitude of market bubbles we choose a setting in which the fundamental value of the asset is clearly and unambiguously defined and known at all times and bubbles typically occur namely we use the experimental environment that smith suchanek and williams 1988 introduce while

true world income distribution 1988 and 1993 first calculation based on household surveys alone the paper derives world income or expenditure distribution of individuals for two years 1988 and 1993 it is the first paper to calculate world distribution for individuals based entirely on household survey data from 91 countries and adjusted for differences in purchasing power parity between the countries measured by the gini index inequality increased from an already very high 63 in 1988 to 66 in 1993 the increase was driven more by rising differences in mean incomes between the countries than by rising inequalities within countries the most important contributors were rising urban rural differences in china and slow growth of rural incomes in south asia compared to several large developed market economies

wage dynamics and inequality in the brazilian formal labor market abstract this paper investigates the decrease in wage inequality among working age men in the brazilian formal labor market by decomposing it into its permanent and transitory components the permanent component refers to workers productivity characteristics such as education and abilities whereas the transitory component relates to noise caused by economic instability we use data from the annual reports of social information rais from 1994 to 2016 covering periods of both economic instability and stability our proposed model includes year and cohort specific effects in both components and we use minimum distance methods to estimate our parameters of interest overall we observe a downward trend in wage inequality levels for most cohorts during the entire period however different sources are associated with this decrease in different sub periods this decline can be attributed to reductions in the transitory component from 1994 to 2005 related to the economic stabilization process and in the permanent component from 2010 to 2016 moreover our results suggest that the permanent component has an important role in explaining the wage inequality level in brazil especially considering older cohorts even though its share in terms of total variance has decreased over the 2010s finally we show that age and education are accountable for a great share of permanent inequality with this percentage being even greater for younger cohorts although their relative importance also decreased over the years

voter participation and strategic uncertainty the paradox of not voting is examined in a model where voters have uncertainty about the preferences and costs of other voters in game theoretic models of voter participation under complete information equilibrium outcomes can have substantial turnout even when voting costs are relatively high in contrast when uncertainty about preferences and costs is present only voters with negligible or negative net voting costs participate when the electorate is large

is mandatory voting better than voluntary voting we investigate the welfare effects of policies that increase voter turnout in costly voting models in a generalized costly voting model we show that if the electorate is sufficiently large then increasing voter turnout is generically efficient increasing turnout in small elections is only inefficient if the electorate is evenly divided or if there is already almost complete voter participation finally we argue that the effects underlying our results are robust in a large class of endogenous participation models

comparing the accuracy and explainability of dividend free cash flow and abnormal earnings equity valuation models this paper compares the reliability ofvalue estimates from the discounted dividend model the discounted free cash flow model and the discounted abnormal earnings model using a large sample of val

a unified analysis of rational voting with private values and group specific costs we provide a unified analysis of the canonical rational voting model with privately known political preferences and costs of voting focusing on type symmetric equilibrium we show that for small electorates members of the minority group vote with a strictly higher probability than do those in the majority but the majority is strictly more likely to win the election as the electorate size grows without bound equilibrium outcome is completely determined by the individuals possessing the lowest cost of voting in each political group we relate our equilibrium characterization to myerson s poisson games and examine the potential uniqueness of equilibrium

large electorates and decisive minorities there are many instances in which even in a democracy the political preferences held by a minority of the electorate are reflected in political outcomes it is shown that for a simple two alternative election environment characterized by costly voting and private information when the expected population is very large the alternative preferred by more expected zealous voters who have either large stakes in the outcome of the election or small costs of participating wins with high probability in any equilibrium even if the expected proportion of the entire electorate that shares that preference is arbitrarily small this is an undersirable outcome under either of two natural but very different normative criteria

employee stock options equity valuation and the valuation of option grants using a warrant pricing model we investigate the use of a warrant pricing approach to incorporate employee stock options esos into equity valuation and to account for the dilutive effect of esos in the valuation of option grants for financial reporting purposes our valuation approach accounts for the jointly determined nature of eso and shareholder values the empirical results show that our stock price estimate exhibits lower prediction errors and higher explanatory powers for actual share price than does the traditional stock price estimate we use our valuation approach to assess the implications of dilution on the fair value estimates of eso grants we find that the fair value is overstated by 6 if we ignore the dilutive feature of esos furthermore this bias is larger for firms that are heavy users of esos small and r d intensive and for firms that have a broad based eso compensation plan

skill biased technology transfer around the world in this paper we consider the extent to which skill biased technological changes are transferring across international borders thereby altering the skill structure of labour markets evidence of increased relative demand for skilled workers is uncovered in the manufacturing sectors of 37 high middle and low income countries skill biased technology transfer is central to the increased demand for skilled workers in middle income countries in low income countries there is less evidence of such a mechanism operating

market in efficiency in valuing electric utilities the case of norwegian generating companies after deregulation of the energy market in norway a number of mergers and acquisitions of hydropower generating companies have taken place however valuation of these companies has proved controversial from an ex post perspective there is support for the criticism that generation assets have been sold too cheaply this article presents a simple valuation model providing evidence of how value has evolved on the basis of these results we discuss the valuation from an ex ante perspective and in the light of the market efficiency hypothesis of fama 1970 1991

a contracting perspective on earnings quality abstract this paper analyzes the impact of signal to noise ratios and the autocorrelation of a performance measure on the principal s welfare in dynamic agencies with renegotiation we consider the impact of changes in the persistent transitory and reversible components of accounting earnings on its usefulness in valuation versus contracting increasing the persistent components and reducing the reversible components are generally desirable for valuation but not for contracting eliminating transitory components of earnings is generally desirable for valuation but not necessarily for contracting we discuss the contracting implications of differences in the autocorrelations of accounting earnings versus stock returns

a comparative welfare analysis of electoral systems with endogenous turnout i investigate the welfare properties of a broad class of electoral systems with endogenous turnout i find that the welfare ranking of electoral systems depends on the composition of the electorate if citizens have identical voting costs then all electoral systems that satisfy certain regularity properties generate the same level of welfare if voting costs are heterogeneous and the two parties are almost equally popular then majority rule mr generates the highest welfare among these systems i also analyse a model with heterogeneous and group specific costs i show that under certain conditions proportional representation dominates mr

a picture of wage inequality and the allocation of labor through a period of trade liberalization the case of brazil this paper constructs a picture of the labor market impact of trade liberalization in brazil we examine the level and dispersion of wages the skilled wage premium and employment composition before and after trade liberalization after trade reform there was a rise in the returns to college education which since the share of college workers also rose is attributable to rising demand this change did not increase overall wage dispersion because of the small share of college educated workers and because of decreasing returns to intermediate levels of education

the allowance for uncollectible accounts conservatism and earnings management we study the interrelation between conservatism and earnings management by examining the allowance for uncollectible accounts and its income statement counterpart bad debt expense we find that the allowance is conservative and that it has become more conservative over time conservatism may however facilitate earnings management we find that firms manage bad debt expense downward and even record income increasing bad debt expense to meet or beat analysts earnings forecasts and that conservatism accentuates the extent to which firms manage bad debt expense further we find that firms manage bad debt expense downward by drawing down previously recorded over accruals of bad debt expense that have accumulated on the balance sheet an implication of our study is that tighter limits on the amount by which firms are permitted to understate net assets may reduce their ability to manage earnings

association between accounting performance measures and stock prices a test of the life cycle hypothesis abstract this paper posits that stock market response to two accounting performance measures sales growth and capital investment is a function of firm life cycle stage firms are grouped into various life cycle portfolios using dividend payout sales growth and age as predicted the empirical results indicate a monotonic decline in the response coefficients of unexpected sales growth and unexpected capital investment from the growth to the stagnant stages additional analysis suggests that this relation is not driven by a firm size effect risk differences or measurement error in the proxies for performance measures

evaluating the nordea experiment evidence from market and accounting data abstract this paper discusses results and difficulties of comparing banks performance based on publicly available data for the case of nordea a pan nordic bank created through mergers of important national banks the objective is to determine whether nordea s unique strategy of functional integration across four countries can be advantageous for stock market data however nordea does not have stable betas on risk factors and thus the comparables method must be used with great care the nordea holding company performed about as well as the comparables both in terms of stock market and accounting data nordea banks in individual countries outperformed comparable holding companies by arithmetic nordea non bank operations are not as profitable as its bank operations in event studies the data lend only the weakest support to the hypothesis that the market viewed nordea s acquisitions as adding value

the sub optimality of the majority rule abstract we consider collective choice from two alternatives ex ante each agent is uncertain about which alternative she prefers and may be uncertain about the intensity of her preferences an environment is given by a probability distribution over utility vectors that is symmetric across agents and neutral across alternatives in many environments the majority voting rule maximizes agents ex ante expected utilities among all anonymous and dominant strategy implementable choice rules but in some environments where the agents utilities are stochastically correlated other dominant strategy choice rules are better for all agents if utilities are stochastically independent across agents majority voting is ex ante optimal among all anonymous and incentive compatible rules we also compare rules from an interim viewpoint

the value relevance of brand valuation abstractthe reports published by independent parties are often used to provide an estimation of brands due to the lack of literature and best practices regarding which brand valuation method is more value relevant and reliable than another over the last several years brand valuation debate is growing in importance because of the need to provide a value of intangibles for different purposes the purpose of this study is two fold first we aim to understand whether brand valuation related to listed companies provided by three independent agencies is value relevant and therefore whether these brand valuations are taken into consideration by investors in their decision making process second we assess which of the three methods reflects the stock markets in a better way we analyse a sample of 71 brands valuated by interbrand brand finance and brandz from 2013 to 2015 the results show that brand valuation provided by the independent agencies is value relevant in addition they reveal that the brand fin

economic policy changes and wage differentials in latin america abstract this article presents estimates of the impact of changes in liberalization policies on wage differentials by schooling level using a new high quality data set for 18 latin american countries for 1977 98 the method controls for all fixed and time varying country characteristics some of which may affect the policies themselves the results indicate that liberalizing policy changes overall have had a short run disequalizing effect of expanding wage differentials although this effect tends to fade away over time this disequalizing effect is due to the strong impact of domestic financial market reform capital account liberalization and tax reform however privatization contributed to narrowing wage differentials and increasing trade openness had no significant effect on wage differentials technological progress rather than trade flows appears to be a channel through which policy changes are affecting inequality

follow the leader theory and evidence on political participation using state by state voting data for u s presidential elections the authors observe that voter turnout is a positive function of predicted closeness to explain the strategic component of political participation they develop a follow the leader model political leaders expend effort according to their chance of being pivotal which depends on the expected closeness of the race at both state and national levels and how voters respond to their effort structural estimation supports this model for example a 1 percent increase in the predicted closeness at the state level stimulates leaders efforts which increases turnout by 0 34 percent

policy divergence and voter polarization in a structural model of elections abstractone of the most widely discussed phenomena in american politics today is the perceived increasing partisan divide that splits the u s electorate a contested question is whether this diagnosis is actually true and if so what the underlying cause might be we propose a new method that simultaneously estimates voters preferences and parties positions on economic and cultural issues we apply the model to u s presidential elections between 1972 and 2008 the model recovers candidates positions from voters behavior and decomposes changes in the overall political polarization of the electorate into changes in the distribution of voters ideal positions voter radicalization and consequences of elite polarization sorting

book rate of return and prediction of earnings changes an empirical investigation over the years there has developed a fairly substantial body of research on the time series of earnings as a whole this literature concludes that changes in annual accounting earnings are unpredictable that is earnings follow a random walk 1 based on this result some inferences of economic substance policy have been claimed 2 in this paper we reconsider empirical issues which at least to some extent have been obscured by this conclusion we argue that the above result is only true in a limited sense since a modest enlargement of the predictive information set should allow for a rejection of the hypothesis that earnings changes are

accrual accounting informational sufficiency and equity valuation this paper studies accrual accounting and equity valuation in the context of a firm that makes repeated and overlapping investments in productive capacity the analysis identifies a particular accrual accounting depreciation rule that is termed replacement cost accounting because the book value of existing capacity assets is set equal to the value that such assets would have if a competitive market were to exist for used assets it is shown that replacement cost accounting aggregates past investment decisions of the firm without a loss of value relevant information the intrinsic value of the firm can then be expressed as a function of current accounting data and certain parameters of the firm s operating environment further it is shown that replacement cost accounting is essentially the only accounting rule with this informational sufficiency property

the ability of earnings to predict future operating cash flows has been increasing not decreasing we investigate the relationship between earnings and one year ahead operating cash flows from 1973 to 2000 although the extant research indicates a weakening relationship between contemporaneous earnings and stock prices over time we find that the relationship between current earnings and future operating cash flows has increased over time this result holds for numerous divisions of our sample out of sample predictions of operating cash flows generally show increasing forecast accuracy over time increasing accounting conservatism appears to play a role in this phenomenon

aggregating information by voting the wisdom of the experts versus the wisdom of the masses this article analyzes participation and information aggregation in a common value election with continuous private signals in equilibrium some citizens ignore their private information and abstain from voting in deference to those with higher quality signals even as the number of highly informed peers grows large however citizens with only moderate expertise continue voting so that voter participation remains at realistic levels e g 50 to 60 percent for simple examples the precise level of voter turnout along with the margin of victory are determined by the distribution of expertise improving a voter s information makes her more willing to vote consistent with a growing body of empirical evidence but makes her peers more willing to abstain providing a new explanation for various empirical patterns of voting equilibrium participation is optimal even though the marginal voter may have very little e g below average expertise and even though nonvoters information is not utilized copyright oxford university press