expectations exchange rates and monetary theory the case of german hyperinflation abstract this paper tests some of the structural coefficient restrictions on goods price equations and foreign exchange rate equations implied by the monetary theory of exchange rates the data are from the german hyperinflation 1922 1923 the results of the tests broadly support the monetary theory of exchange rates and they also support the hypothesis that the foreign exchange market was efficient during this period however the much higher residual volatility in foreign exchange prices is not explained by the monetary theory

inflation and currency depreciation in germany 1920 1923 a dynamic model of prices and the exchange rate this paper presents a dynamic model of the german hyperinflation explaining prices the exchange rate and the money supply in the model estimated simultaneously the nominal exchange rate is allowed to diverge from purchasing power parity in the short run the monetary approach to exchange rate determination and the quantity theory of money are assumed to be valid in the long run the dynamic adjustment of prices and the exchange rate to monetary disturbances is made explicit and currency substitution between domestic and foreign currency is introduced explicitly the problem of the autocorrelation of the residuals of the money demand function found in previous studies is resolved the fit of inflation and exchange rate changes is very satisfactory and the speed of adjustment of the exchange rate to monetary disturbances is found to be much higher than for prices copyright 1995 by ohio state university press

does decentralization contribute to efficiency evidence from oecd countries abstractthis article provides evidence on the relationship between fiscal decentralization and technical efficiency we begin the first stage of this study with a data envelopment analysis to obtain technical efficiency estimates for a sample of 23 oecd countries over the period 1992 2009 in a second stage we explore the effects of fiscal decentralization and other control variables on technical efficiency the results including all the control variables reveal a statistically significant negative relationship between fiscal decentralization of public expenditure and technical efficiency

signal jamming models of fraudulent misreporting and economic prospects an experimental investigation abstract this study uses experimental methodology to examine how the frequency and magnitude with which managers commit fraud varies with economic prospects boom middle and bust the experimental design is based on signal jamming equilibrium sje models of fraud in which managers make potentially inaccurate public reports and investors bid on shares under sje managers always exaggerate reports by a fixed amount up to the maximum possible report independent of the truth shareholders can perfectly correct managers reports except for the maximum possible report in contrast the results of the experiment show four robust deviations from sje predictions 1 managers exaggerate and shareholders correct reports according to dominated mixed strategies with probabilities significantly less than one 2 managers exaggerate more frequently and by more when outcomes are poor 3 shareholders adjust low reports by less than high reports and 4 shareholders correct relatively high reports by more in booms than busts even though managers reporting strategies are invariant to economic prospects

unobserved rational expectations and the german hyperinflation with endogenous money supply a kalman filtering technique is employed to test the convergent expectation hypothesis in the great german hyperinflation when the money supply is endogenously determined after converting the model structure to a state space form the parameters are estimated via minimization of a gaussian likelihood function the result is then used in a filter smoother combination to yield smoothed estimates of the state variable associated with the arbitrary constant of the rational expectations solution bo th para metric and nonparametric tests lead us to reject the null hypothesis of convergent expectations copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the endogeneity of money during the german hyperinflation a reappraisal this paper provides evidence that casts doubt on the conclusioon of several studies of the german hyperinflation that since government raised most of its revenue from money creation the money supply process was endogenous this conclusion in the literature is based on the assumption that the money supply and the price level can be described by linear arima models it is shown here that the linearity assumption is violated by the data and that relaxing this assumption reverses the earlier results the paper provides additional evidence in support of the finding that the money supply process may be exogenous

money and the dispersion of relative prices a price dispersion equation is tested with data from the german hyperinflation the equation is derived from a version of lucas s and barro s partial information localized market models in this extension different excess demand elasticities across commodities imply a testable dispersion equation in which the explanatory variable is the magnitude of the unperceived money growth in order to test this hypothesis a price dispersion series is constructed and a measure of the unperceived part of money growth is estimated the model receives support from the empirical analysis although it is evident that unincluded variables have important effects on price dispersion

earnings manipulation and the cost of capital the cost of capital the widespread use of accounting information by investors and financial analysts to help value stocks creates an incentive for managers to manipulate earnings in an attempt to influence short term stock price performance this paper examines the role of earnings management in affecting a firm s cost of capital using an agency model with multiple firms whose cash flows are correlated we demonstrate that the extent of earnings manipulation varies across the business cycle depending on a firm s earnings profile it can have stronger incentives to overstate its performance in good times or in bad times because of this dependence on the state of the economy earnings manipulation can influence a firm s cost of capital despite the forces of diversification

product market competition incentives and fraudulent behavior abstract the present paper studies incentive provision in a model where a manager can affect the firm s stock price by exerting unobservable effort and through costly deceptive signalling and investigates the role product market competition plays in shaping shareholders trade off between inducing effort and fraud

mechanism design with interdependent valuations efficiency ggagents valuations are interdependent if they depend on the signals or types of all agents under the implicit assumption that agents cannot observe their outcome decision payoffs previous literature has shown that with interdependent valuations and independent signals efficient design is impossible this paper shows that an efficient mechanism exists in an environment where first the final outcome e g allocation of the goods is determined then the agents observe their own outcome decision payoffs and then final transfers are made

incentive compatible regulation of a foreign owned subsidiary abstract transfer prices are administered charges for intra firm transfers of factors of production for a multinational firm transfer prices for international transfers provide the means to redistribute costs and increase global profits given variations in national tax and profit repatriation policies local regulation of a subsidiary may thus be necessary to limit the welfare costs of strategic transfer pricing prusa journal of international economics 1990 28 155 172 characterizes the welfare maximizing regulations for a monopoly subsidiary that induce the firm to report transfer prices truthfully we show however that it can be more efficient to implement regulations that encourage the firm to misrepresent its true transfer costs

the relation between earnings based measures in firm debt contracts and ceo pay sensitivity to earnings abstract i investigate how implicit incentives provided by earnings based debt covenants affect the structure of ceo compensation contracts this provides a new and unique view of how the ceo s incentives are shaped by not only his compensation contract but also debt contracts i find when debt contracts contain an earnings based covenant the ceo s pay sensitivity to earnings is muted additionally i find some evidence that pay sensitivity to earnings varies with earnings based covenant slack this study provides evidence consistent with shareholders rebalancing the ceo s earnings incentives in the presence of earnings based covenants thereby tilting incentives away from earnings performance

cost padding in regulated monopolies abstract this paper considers the regulated monopoly that pads or falsifies its costs to increase the cost reimbursement it receives from the regulator contrary to the standard literature on cost regulation the firm engages in cost reducing investment before it enters into a regulatory contract this pre contractual investment in cost reduction determines the firm type at the contracting stage the paper derives both the optimum incentive compatible falsification contract and the equilibrium type distribution with the distribution of cost types determined endogenously by the pre contractual investment choice an increase in the cost of falsification has two effects first there is a direct effect that reduces cost padding because it becomes more expensive to do so second there is an indirect effect that increases cost padding because the firm responds by choosing lower investments and lower investments are associated with more cost padding it is demonstrated that the direct effect will dominate and both expected levels of cost padding and expected costs for falsification will be reduced however the indirect effect increases real costs and despite the reduction in cost padding the net effect can reduce welfare it is determined that these conclusions are significantly different from those obtained when the distribution of cost types is exogenously fixed

complexity and empirical economics this article explores the state of interplay between recent efforts to introduce complex systems methods into economics and the understanding of empirical phenomena the empirical side of economic complexity may be divided into three general branches historical studies the identification of power and scaling laws and analyses of social interactions i argue that while providing useful stylised facts none of these empirical approaches has produced compelling evidence that economic contexts exhibit the substantive microstructure or properties of complex systems this failure reflects inadequate attention to identification problems identification analysis should therefore be at the centre of future work on the empirics of complexity

on the determinants of fiscal centralization theory and evidence abstract this paper presents a simple model that unifies most of the results of the literature on fiscal federalism the model describes an economy characterized by two levels of government one public good and a private good the predictions of the model are tested by using a new set of measures of fiscal centralization the main findings are that country size income per capita ethnic fractionalization and level of democracy are negatively correlated with the degree of fiscal centralization the model is tested using ols tobit and semi parametric estimators the paper also shows that the variables included in the regression are helpful in the prediction of changes in the level of centralization

the economics of earnings manipulation and managerial compensation this article examines managerial compensation in an environment where managers may take a hidden action that affects the actual earnings of the firm when realized these earnings constitute hidden information that is privately observed by the manager who may expend resources to generate an inflated earnings report we characterize the optimal managerial compensation contract in this setting and demonstrate that contracts contingent on reported earnings cannot provide managers with the incentive both to maximize profits and to report those profits honestly as a result some degree of earnings management must be tolerated as a necessary part of an efficient agreement

justifying the first order approach to principal agent problems it is of interest to know when the incentive compatibility conditio n in principal agent problems can be replaced by the condition that the agent s expected utility be stationary in effort the mirrlees rogerson conditions do not work if the principal can observe more than one observable statistic also the mirrlees rogerson assumption that the distribution function of output is convex in the agent s action is unsatisfactory even in the context of the basi c model it is too restrictive the paper presents a suite of conditio ns that are applicable to the multistatistic case and replaces the objectionable convex distribution function assumption copyright 1988 by the econometric society

inflationary effects of changes in effective exchange rates ldcs experience the inflationary effects of devaluations in less developed countries is investigated using rate of change of effective exchange rates it is shown that for most countries in the sample devaluations or depreciations are inflationary during the current floating exchange rate system in addition to inflationary effects of depreciations excees money supply imported inflation and expectation are also identified as additional sources of inflation in less developed countries

federalism and the shadow economy this paper analyzes the relationships between federalism and the shadow economy the theoretical analysis leads to the conclusion that the shadow economy is smaller in federal countries than in unitary states the mobility of individuals among competing jurisdictions leads policy makers to adopt policies that are more efficient in terms of taxation and public good provision this increases the return for activities in the formal sector relative to those in the informal one thus reducing activity in the shadow economy a cross sectional empirical analysis of a sample of 73 countries confirms this theoretical prediction

the demand for money the reform effect and the money supply process in hyperinflation the evidence from greece and hungary ii reexamined newly uncovered data on money and prices in greece and hungary duri ng their hyperinflations are used to reestimate the cagan money demand equation and to repeat the sargent and wallace causality tests it is no longer necessary to exclude observations at the end of each episo de on the premise that they represent the response to an anticipated monetary reform the results for each country now conform to the sargent and wallace findings for most other hyperinflation episodes that causality runs from prices to money i e that money is endogenous copyright 1988 by ohio state university press

quantifying loss averse tax manipulation this article presents evidence that loss aversion affects taxpayers as they file their annual tax returns and presents a framework for estimating the policy impact of this psychological phenomenon in my theoretical framework taxpayers manipulate the money paid to the tax authority through avoidance and evasion activities when taxpayers face the prospect of owing the tax authority money on tax day loss aversion generates the perception of a greater marginal utility of tax reduction and therefore motivates greater pursuit of tax reduction activities applying a bunching based identification strategy to u s tax return data i estimate that taxpayers facing a payment on tax day reduce their tax liability by 34 more than taxpayers owed a refund

the economic effects of federalism and decentralization a cross country assessment this paper explores the idea that institutional details matter and that attempts to estimate the economic effects of federalism by employing a simple dummy variable neglect potentially important institutional details based on a principal component analysis seven aspects of both federalism and decentralization are used as variables for explaining differences in 1 fiscal policy 2 government effectiveness 3 economic productivity and 4 happiness the results show that institutional details do indeed matter different aspects of federalism impact on the outcome variables to different degrees this study adds to our knowledge on the transmission mechanisms of federalism and decentralization

on decentralization and life satisfaction abstract we empirically analyze the impact of fiscal and political decentralization on subjective well being in a cross section of 60 000 individuals from 66 countries more spending or revenue decentralization raises well being while greater local autonomy is beneficial only via government consumption spending

identifying and testing models of managerial compensation this article analyses the identification and empirical content of the pure moral hazard pmh and the hybrid moral hazard hmh principal agent models the pmh model has hidden actions while the hmh model has hidden information in addition to hidden actions in both models agents are risk averse and principals are risk neutral the article derives the equilibrium restrictions from the optimal contract and uses the restrictions to show that the models have empirical content for any given risk aversion parameter the models other parameters are non parametrically point identified the risk aversion parameter and hence the model are however only partially identified management s ability to manipulate accounting reports arises endogenously within hmh models but not in all versions of pmh models we use our framework to investigate whether shareholders contract with management recognizing that accounting reports are susceptible to manipulation and therefore endogenous to the incentives offered to management the data reject all models in which accounting reports are verifiable furthermore the version of the pmh in which accounting reports can be manipulated is rejected if expected compensation is restricted to be positive

on the merit of equal pay performance manipulation and incentive setting abstract work performance is often difficult to assess thus leaving room for manipulation of commonly used metrics we created a laboratory workplace in which we can precisely assess both work performance along with manipulation activities using two independent experiments we show that whenever pay for performance is used manipulation is pervasive leading to both a waste of organizational resources and a weakening of incentives by contrast paying organizational members equally effectively deters manipulation attempts leading to higher organizational production

decentralisation as an incentive scheme recent changes have introduced more decentralization in a number of traditionally centralized countries 1 in the case of france it is sometimes claimed that the 1982 1983 reform of subcentral government is of historical importance although the principles of that reform are not contested any more by the new majority elected in 1986 opinions still differ on a number of policy issues some of the issues are presented in this introductory section but the main purpose of this paper is not to expose or discuss in detail the problems of decentralization in france as argued in the second part of the introductory section the theoretical framework in which the policy issues of decentralization are usually discussed by economists is somewhat unsatisfactory in particular when applied to unitary states such as britain or france the bulk of the paper is devoted to the exploration of a different approach to decentralization it is not purported however that this approach could completely replace the more traditional one consequently when in the concluding section we return briefly to the policy issues identified here this is to be read as a preliminary attempt to evaluate the relevance of the reasoning developed in the paper

how common are intentional gaap violations estimates from a dynamic model this paper uses data on detected misstatements earnings restatements and a dynamic model to estimate the extent of undetected misstatements that violate gaap the model features a ceo who can manipulate his firm s stock price by misstating earnings i find the ceo s expected cost of misleading investors is low the probability of detection over a five year horizon is 13 91 and the average misstatement if detected results in an 8 53 loss in the ceo s retirement wealth the low expected cost implies a high fraction of ceos who misstate earnings at least once at 60 with 2 22 of ceos starting to misstate earnings in each year 2003 2010 inflation in stock prices across ceos who misstate earnings at 2 02 and inflation in stock prices across all ceos at 0 77 wealthier ceos manipulate less and the average misstatement is larger in smaller firms this article is protected by copyright all rights reserved

decentralization as a constraint to leviathan a panel cointegration analysis this paper extends the empirical literature about the effects of fiscal decentralization on the growth of government along three dimensions it distinguishes between the effects of the level of decentralization from the way local governments finance their expenditures common pool versus own resources it uses a panel cointegration approach to separate the long run effects of decentralization from the short run dynamics and it extends and revises the datasets generally used in these empirical analyses the results show that the amount of revenue raised by sub national governments leads to a long term fall in the size of government but grants have the opposite effect in addition a greater decentralization of expenditure leads to greater overall spending when the short term is considered these influences work slowly as the speed of adjustment towards the desired government size is relatively sluggish in addition in the short run there is also a clear effect from the role of local revenue raising powers that stimulates the growth of government these results appear robust to changes in the composition of the variables countries and periods included the sample

chaos in economic models with exogenous shocks abstract we investigate the generation of chaos in economic models through exogenous shocks the perturbation is formulated as a pulse function where either values or instants of discontinuity are chaotically behaved we provide a rigorous proof of the existence of chaos in the perturbed model the analytical results are applied to kaldor kalecki type models of the aggregate economy subject to export and rainfall shocks respectively simulations are used to demonstrate the emergence and the control of chaos our results shed light on a novel source of chaos in economic models and have important implications for policy making

rulers of the game central bank independence during the interwar years central bank independence is associated with restrictive monetary choices that can be deflationary within fixed exchange rate regimes because central banks act to counteract domestic inflation they put a premium on domestic price stability at the expense of international monetary stability evidence from fifteen countries between 1925 and 1938 shows that the more independent central banks took more deflationary policies than were necessary for external adjustment central banks in general were more restrictive under left wing governments than they were under more conservative regimes and often were more restrictive than required for external equilibration this suggests that policies of independent central banks designed to enhance domestic price stability may force deflationary pressures onto other states in the system and potentially destabilize a fixed exchange rate regime

decentralization and corruption evidence across countries the relationship between decentralization of government activities and the extent of rent extraction by private parties is an important element in the recent debate on institutional design the theoretical literature makes ambiguous predictions about this relationship and it has remained virtually unexamined by empiricists the authors make a first attempt at examining the issue empirically by looking at the cross country relationship between fiscal decentralization and corruption as measured by a number of different indices their estimates suggest that fiscal decentralization in government spending is significantly associated with lower corruption moreover they find that the origin of a country s legal system for example civil versus common legal code performs extremely well as an instrument for decentralization the estimated relationship between decentralization when so instrumented and corruption is even stronger the evidence suggests a number of interesting areas for future work including investigating whether there are specific services for which decentralized provision has a particularly strong impact on political rent extraction and understanding the channels through which decentralization succeeds in keeping corruption in check

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

reviving leviathan fiscal federalism and the growth of government this article revisits the influential leviathan hypothesis which pos its that tax competition limits the growth of government spending in decentralized countries i use panel data to examine the effect of fiscal decentralization over time within countries attempting to distinguish between decentralization that is funded by intergovernmental transfers and local taxation first i explore the logic whereby decentralization should restrict government spending if state and local governments have wide ranging authority to set the tax base and rate especially on mobile assets in countries where this is most clearly the case decentralization is associated with smaller government second consistent with theoretical arguments drawn from wel fare economics and positive political economy i show that governments grow faster as they fund a greater portion of public expenditures through intergovernmental transfers

competition for talent under performance manipulation abstract we study the effects of introducing competition for ceos assuming that the talent of ceos is not observable and that they can misreport their performance without competition for talent firms maximize their profits by offering inefficiently low powered incentive contracts competition for talent removes those inefficiencies but it leads to excessively high powered incentive contracts causing efficiency losses that can be more severe than the inefficiencies that competition mitigates if misreporting is not a concern however then competition for talent has unambiguously positive effects on efficiency

the influence of unrelated and related diversification on fraudulent reporting this study suggests that unrelated diversification has a positive influence on the probability of fraudulent reporting whereas related diversification has a negative influence on the probability of fraudulent reporting the strength of the influence of these corporate level strategies is contingent on the moral character of the firm unrelated diversification provides opportunity for financial innovation within the firm s internal capital market which can result in fraudulent reporting this is more likely when the moral character of the firm is driven by a conscienceless financial self interest motive as implied by the firm s contempt toward the larger community in terms of damage inflicted on the interests of people outside the firm in contrast related diversification where product divisions focus on mutual sharing and monitoring of operational activities can reduce the probability of fraudulent reporting this is more likely when constituents within the firm view themselves as moral citizens as implied by the firm s benevolence toward the larger community hence while unrelated diversification focuses the energies of managers within the firm on financial manipulation related diversification focuses these energies on productive purposes

what does ceos pay for performance reveal about shareholders attitude toward earnings overstatements if overstatements were a symptom of the agency conflict pay for performance sensitivities should have increased in response to the additional penalties for misreporting imposed by sox our finding of their decrease is inconsistent with the view that overstatements were an unintended consequence of incentive pay prior to 2002 to corroborate our interpretation we show that i ceo pay for performance sensitivities are higher among firms whose shareholders stand to benefit from overstatements ii this cross sectional relationship weakens significantly after sox and iii the within firm decrease in pay for performance sensitivity is most pronounced among firms with high pre sox shareholder benefits from overstatements

incumbent behavior vote seeking tax setting and yardstick competition this paper develops a model of the political economy of tax setting in a multijurisdictional world where voters choices and incumbent behavior are determined simultaneously voters are assumed to make comparisons between jurisdictions to overcome political agency problems this forces incumbents into a yardstick competition in which they care about what other incumbents are doing we provide a theoretical framework and empirical evidence using u s state data from 1960 to 1988 the results are encouraging to the view that vote seeking and tax setting are tied together through the nexus of yardstick competition

accountability and decentralisation in government an incomplete contracts model this paper approaches the question of the appropriate level of decentralisation of power in government as a problem in the allocation of control rights under incomplete contracts the model of the paper compares allocations of power to local central and regional government as alternative means of motivating governments to act in the interests of citizens centralisation allows benefits from policy coordination but has costs in terms of diminished accountability which can be precisely defined as the reduced probability that the welfare of a given region can determine the re election of the government the model is extended to allow for conflicts of interest within regions and externalities between central and local governments in a federation it is also applied to determining levels of fiscal transfer between localities and to circumstances where governments may act as leviathans appropriating resources for their own use

optimal contracts under costly state falsification we examine an exchange economy with two agents one risk neutral with a certain endowment and a second risk averse with a random endowment the realization of the endowment is public but can be falsified by the second agent at a cost for a broad class of falsification cost functions the optimal no falsification contract is noncontingent on a left hand interval and strictly increasing with a slope strictly less than one on a right hand interval under a mild further restriction optimal no falsification contracts are in addition piece wise linear optimal contracts may in general require falsifying the state but for a set of the highest endowment realizations there is no falsification we find simple conditions under which the optimal contract is a no falsification contract the model has applications that include financial insurance and employment contracts and tax policy

are you a good employee or simply a good guy influence costs and contract design we develop a principal agent model with a moral hazard problem in which the principal has access to a hard signal the level of output and a soft behavioral signal the supervision signal about the agent s level of effort in our model the agent can initiate influence activities and manipulate the behavioral signal these activities are costly for the principal as they detract the agent from the productive task we show that the agent s ability to manipulate the behavioral signal leads to low powered incentives and increases the cost of implementing the efficient equilibrium as a result interestingly the fact that manipulation activities entail productivity losses may lead to the design of influence free contracts that deter manipulation and lead to high powered incentives this result implies that the optimal contract and whether manipulation is tolerated in equilibrium or not depends on the magnitude of the productivity based influence costs we show that it may be optimal for the principal not to supervise the agent even if the cost of supervision is arbitrarily low

beyond the fiction of federalism macroeconomic management in multitiered systems recent research on federalism is extremely divided while some tout the benefits of market preserving federalism others point to the fragmentation and incoherence of policy in federal states this research bridges the divide by analyzing the political and fiscal structures that are likely to account for the highly divergent economic experiences of federal systems around the world to test these propositions the authors use an original data set to conduct analyses of budget balance and inflation in fifteen federations around the world from 1978 through 1996 the empirical research suggests that the level of fiscal decentralization the nature of intergovernmental finance and vertical partisan relations all influence macroeconomic outcomes the findings have broad implications for the widespread move toward greater decentralization and for the theoretical literatures on federalism and macroeconomics

fiscal decentralization and economic growth a cross country study abstract we use a panel data set of 46 countries over the 1970 1989 period to investigate the relationship between fiscal decentralization and economic growth we find a negative relationship between fiscal decentralization and growth in developing countries but none in developed countries several explanations are offered for our findings

exchange rate sensitivity of the demand for money in developing countries there is consensus among researches that under the present floating exchange rate system although developing countries peg their exchange rate to a major currency they cannot avoid fluctuation in their effective exchange rates as long as major currencies fluctuate against one another few authors have investigated the effects of changes in effective exchange rates of developing countries on their imports exports trade balance demand for international reserves inflation etc in this paper we try to inestigate the effects of effective exchange rates of developing countries on their demand for money previous authors who have estimated a money demand function inclusive of an exchange rate variable bilateral or effective have restricted themselves to industrial countries only by using quarterly data over the 1973 85 period it is shown that in most developing countries while the short run effcts of depreciation could be in either direction its long run effects are negative indicating that deprecia

is there a link between executive equity incentives and accounting fraud we compare executive equity incentives of firms accused of accounting fraud by the securities and exchange commission sec during the period 1996 2003 with two samples of firms not accused of fraud we measure equity incentives in a variety of ways and employ a battery of empirical tests we find no consistent evidence that executive equity incentives are associated with fraud these results stand in contrast to assertions by policy makers that incentives from stock based compensation and the resulting equity holdings increase the likelihood of accounting fraud

the theory of moral hazard and unobservable behaviour part i principal agent models are studied in which outcomes conditional on the agent s action are uncertain and the agent s behaviour therefore unobservable for a model with bounded agent s utility conditions are given under which the first best equilibrium can be approximated arbitrarily closely by contracts relating payment to observable outcomes for general models it is shown that the solution may not always be obtained by using the agent s first order conditions as constraint general conditions of lagrangean type are given for problems in which contracts are finite dimensional 1 the moral hazard situation

short waves in hungary 1923 and 1946 persistence chaos and lack of control abstract monetary policies follow a complex and chaotic process one that is enhanced when monetary growth is taken to the extreme as in hyperinflation while we have a basic understanding of the complex dynamics of hyperinflation a less explored phenomenon accompanying hyperinflationary episodes is the effect that they have on institutional development building on recent advances in economic history examining monetary policy and institutions this analysis uses more explicit recourse to complexity theory and in particular complex adaptive systems to examine two separate hyperinflationary episodes in hungary 1923 and 1946 delving into the institutional and cultural roots of the inflationary policies of the hungarian government and detailing the institutional effects which succeeded hyperinflation this paper shows that the twin experiences of hungary were both chaotic and created a chaotic and complex aftermath the results of which are still being felt indeed hungary s 1923 and especially its 1946 hyperinflation shows that some economic chaos cannot be restrained by political institutions and in fact the institutions themselves were changed when staring into the abyss hungary also found that the abyss stared back

overstatement and rational market expectation abstract when an agent overstates his her true performance a rational market can still correctly guess the true performance this paper shows however that such rational market expectation and a profit maximizing principal can exacerbate the lack of productive effort by the agent

corporate tax evasion with agency costs this paper examines corporate tax evasion in the context of the contractual relationship between the shareholders of a firm and a tax manager who possesses private information regarding the extent of legally permissible reductions in taxable income and who may also undertake illegal tax evasion using a costly state falsification framework we characterize formally the optimal incentive compensation contract for the tax manager and in particular how the form of that contract changes in response to alternative enforcement policies imposed by the taxing authority the optimal contract may adjust to offset at least partially the effect of sanctions against illegal evasion and we find a new and policy relevant non equivalence result penalties imposed on the tax manager are more effective in reducing evasion than are those imposed on shareholders

is honesty the best policy curtailing insurance fraud through optimal incentive contracts an incentive contracting approach is used to characterize optimal contracts when insured individuals possess private information about their losses and are able to misrepresent permanently their loss magnitudes by engaging in the falsification of claims we demonstrate that efficient agreements necessarily induce some falsification but that the extent of such claims inflation is mitigated partially by an indemnification schedule that overcompensates small losses while overpaying larger ones the differential costs of generating insurance claims through falsification provide an avenue by which the heterogencous insureds can credibly signal their underlying losses and are exploited in an optimal contract to implement loss contingent insurance payments

robustness and local linearisation in economic models this paper discusses the importance of nonlinear dynamics from a theoretical and an empirical point of view it stresses the need for global as opposed to local analysis and develops the important concept of robustness using this concept the paper argues that much modern macroeconomics can be dismissed on methodological grounds alone the paper also deals with the empirics of hyperinflation and with the detection of chaos in financial markets

money credit and wages in hyperinflation post world war i germany an important feature of the german hyperinflation is the way in which accelerating monetization of both government and private debt by the reichsbank fueled the inflation process the stimulus to private credit demand arising from more rapid adjustment of money wages over this period is often ignored however the present empirical results strongly support the importance of wage pressures in augmenting fiscal influences on nominal money growth during 1920 1923 our findings also suggest that wage claims provided the main conduit through which higher inflationary expectations were accommodated by faster rates of monetary expansion

business models for media firms does competition matter for how they raise revenue the purpose of this article is to analyze how competitive forces may influence the way media firms like tv channels raise revenue a media firm can either be financed by advertising revenue by direct payment from the viewers or the readers if we consider newspapers or by both we show that the scope for raising revenues from consumer payment is constrained by other media firms offering close substitutes this implies that the less differentiated the media firms content the larger is the fraction of their revenue coming from advertising a media firm s scope for raising revenues from ads on the other hand is constrained by how many competitors it faces we should thus expect that direct payment from the media consumers becomes more important the larger the number of competing media products