rationality of preliminary money stock estimates earlier studies have presented mixed evidence on the rationality of the federal reserve s preliminary money stock estimates the authors investigate the rationality of m1a m1 m2 and m3 for both seasonally and not seasonally adjusted data they find preliminary growth rates of these aggregates to be rational for not seasonally adjusted data but irrational when data are seasonally adjusted using monte carlo studies the authors conclude that irrationality in seasonally adjusted data arises from the specific seasonal adjustment procedure used by the federal reserve as a result researchers conducting similar tests may want to focus exclusively on not seasonally adjusted data copyright 1995 by mit press

frontiers of real time data analysis in the past ten years researchers have explored the impact of data revisions in many different contexts researchers have examined the properties of data revisions how structural modeling is affected by data revisions how data revisions affect forecasting the impact of data revisions on monetary policy analysis and the use of real time data in current analysis this paper summarizes many of the questions for which real time data analysis has provided answers in addition researchers and institutions have developed better real time data sets around the world still additional research is needed in key areas and research to date has uncovered even more fruitful areas worth exploring jel c52 c53 c80 e01

spillovers investment incentives and the property rights theory of the firm this paper examines the property rights theory of the firm when a manager s relationship specific investment can be partially appropriated by the owner of an asset even if cooperation breaks down the investments of non owners may then be devalued but are seldom wholly lost to the owner with such spillovers the outside option principle can be incorporated into the grossman hart moore framework without implying that ownership demotivates enriched predictions on the determinants of integration emerge

the acquisition of fisher body by general motors abstract it is commonly said that in 1926 general motors was led to acquire its supplier of automobile bodies fisher body because fisher body held up general motors it is claimed that fisher body did this by locating its body plants far away from the general motors assembly plants and by adapting inefficient methods of production thus increasing both the cost of producing bidies and the profits of fisher body under its cost plus contract this tale is factually incorrect what general motors acquired in 1926 was the 40 percent of the shares of fisher body that it did not already own furthermore fisher body did not locate its plants far away from the general motors assembly plants it is also most implausible for many reasons that the fisher brothers would have used inefficient methods of production there is no evidence that a holdup occurred

expanding the solution set organizational economics and agri environmental policy abstract the market failure paradigm dominates agri environmental research and policy organizational economics provides an alternative framework for analyzing agri environmental problems and points to alternative solutions in this paper the traditional approach of creating markets for environmental goods and services is critiqued and set aside to provide space for an organizational analysis from an organizational perspective the relationship between the state and agricultural agents is viewed as grounded in an over arching exchange relationship including elements of cooperation and trust such a collaborative exchange relationship may prove useful in supporting exchange between agricultural agents and the state leading to the provision of ecological goods and services highlighting the potential of organizational economics the analysis suggests that agri environmental research and policy go further in accounting for and investigating the unique organizational modes of exchange governing the production of food fiber and ecological goods and services

pragmatic collaborations advancing knowledge while controlling opportunism this paper starts from the observation that firms are increasingly engaging in collaborations with their suppliers even as they are reducing the extent to which they are vertically integrated with those suppliers this fact seems incompatible with traditional theories of the firm which argue that integration is necessary to avoid the potential for hold ups created when non contractible investments are made our view is that pragmatist mechanisms such as benchmarking simultaneous engineering and root cause error detection and correction make possible learning by monitoring a relationship in which firms and their collaborators continuously improve their joint products and processes without the need for a clear division of property rights we argue that pragmatic collaborations based on learning by monitoring both advance knowledge and control opportunism and thus align interests between the collaborators copyright 2000 by oxford university press

corporate contracting for health care this paper examines the process used by fortune 500 companies to contract with health care carriers for complex and hard to observe services we confirm in part the conventional view that large companies partner with health care insurers however we show that the picture is more complex and that most of these companies do not engage in several aspects of partnering the complete nature of our data allows us to describe the distribution of company practices from tough bargaining without continuing relationships to partnering we also show that contract length can be a poor proxy for length of relationship

monetary misperceptions output and inflation dynamics we revisit the contribution of misperceived money to business cycles and in particular to the inertial dynamics of inflation following a monetary policy shock we establish three things first the difference between preliminary and revised money data captures monetary misperceptions well second misperceived money is quantitatively substantial and also matters significantly for economic activity and third imperfect information about monetary aggregates can help the standard nk model exhibit inertial inflation dynamics

data revisions are not well behaved we document the empirical properties of revisions to major macroeconomic variables in the united states our findings suggest that they do not satisfy simple desirable statistical properties in particular we find that these revisions do not have a zero mean which indicates that the initial announcements by statistical agencies are biased we also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement which means that the initial announcements of statistical agencies are not rational forecasts

are preliminary announcements of the money stock rational forecasts abstract we develop a theoretical framework of analyzing preliminary announcements of economic data and then apply this framework to the money stock we find that preliminary announcements of the money stock are best characterized as measured with classical errors in variables that is the revision is not correlated with the true value of the series the revision is however forecastable using information available at the time of the preliminary announcement our ability to forecast the revision implies that preliminary announcements are not rational estimates of the true money stock

can we improve upon preliminary estimates of payroll employment growth we explore the feasibility of improving upon the preliminary estimates of payroll employment growth from the u s bureau of labor statistics by predicting subsequent revisions to these estimates using the preliminary estimates themselves and other information available concurrently results of statistical tests suggest that the preliminary estimates can be improved upon that is they are not efficient forecasts of the revised estimates the improvement of preliminary estimates as indicators of estimates of employment growth following annual benchmarks is particularly large the unanticipated component of the revision based on the annual benchmarks is reduced by more than 22

agglomeration opportunism and the organization of production abstract recent economic analysis of outsourcing has emphasized its international dimension in contrast this paper focuses on local outsourcing the paper specifies and solves a model where the organization of production vertically integrated or not and the location of production agglomerated or not are jointly determined the paper shows that agglomeration reduces opportunism a thick market effect and so serves as a substitute for integration this force will lead firms to agglomerate the paper also shows that the normative properties of equilibrium with local outsourcing are not as clear cut as for international outsourcing since local agglomeration is achieved at the cost of congestion local markets may be too thick which would not be the case for an increase in the thickness of a world market finally the many changes in economic and social circumstance that have been labeled globalization do not impact only vertically integrated firms they also impact cities and industry clusters to the extent that agglomeration is a substitute for vertical integration

does trade openness improve environmental quality the literature on trade openness economic development and the environment is largely inconclusive about the environmental consequences of trade this study treats trade and income as endogenous and estimates the overall impact of trade openness on environmental quality using the instrumental variables technique we find that whether or not trade has a beneficial effect on the environment varies depending on the pollutant and the country trade is found to benefit the environment in oecd countries it has detrimental effects however on sulfur dioxide so2 and carbon dioxide co2 emissions in non oecd countries although it does lower biochemical oxygen demand bod emissions in these countries we also find the impact is large in the long term after the dynamic adjustment process although it is small in the short term

endogenous verifiability and relational contracting for contracting parties it will often be uncertain whether a legal court is able to enforce the real intents of their contract the strict requirements of verifiability make it costly if not impos sible for parties to arrange their transactions and design their contract in a way that makes it completely protected by the court a way out is then to rely on self enforcing relational con tracts through repeated transactions the parties can make it costly for each other to breach the contract by letting breach ruin future trade but the self enforcing range of contracts is limited so the court s ability to enforce a contract is not without consequence for the contracting parties if possible the parties may thus have incentives to take costly actions that affect the ability of the court both ex ante preparations in terms of detailed contracting and ex post revelation of informa tion can increase the probability of fair court enforcement in this paper we focus on the former assuming that the parties are able to improve the verifiability of the contracted actions by care ful ex ante contract specifications we assume that careful contracting can improve the court s ability to verify whether an action conforms to the one described in the contract then we ask what happens to the self enforcing contract equilibrium if a party takes actions ex ante that affect the probability of verification in order to provide some answers we analyze a simple repeated principal agent game where the verifiability of the agent s actions is endogenously determined by the principal s investments in drafting an explicit contract pertaining to the quality of the agent s output the model makes it possible to identify some subtle effects of two key enforcement devices legal courts and repeated interaction note that by endogenizing verifiability we also endog enize the degree of contractual incompleteness and the equilibrium level of incompleteness will depend on the verification technology i e the resource costs that are necessary to achieve various verifiability levels this verification technology will be influenced in an essential way by the quality of courts in fact we can use the model to study relationships between two distinct aspects of courts namely their ability which influences the verification technology and their predictability which manifests itself in the equilibrium level of verifiability i e the probability with which the court in fact will verify the relevant action the repeated game approach formalizes an economic concept of trust and trustworthiness since a party honors trust if the present value of honoring exceeds the present value of abusing it the discount factor is then a proxy for the trust level in the relationship by studying the effect of variations in verification technology and the discount factor we can gain insight into the rela tionship between court ability explicit contracting trust and relational contracting below we summarize the results

the evolutionary firm and cournot s dilemma to transform this competence based approach into an evolutionary theory the con nection between the firm and veblen s concept of social knowledge is more fully devel oped once established the evolutionary theory of the firm is utilised to bypass marshall s reconciliation problem and solve cournot s dilemma

asset specificity and vertical integration asset specificity is usually considered to be an argument for vertical integration the main idea is that specificity induces opportunistic behavior and that vertical integration reduces the cost of preventing opportunism in this paper i show that asset specificity can be an argument for non integration in a repeated game model of self enforcing relational contracts it is shown that when parties are non integrated increasing degrees of asset specificity make it possible to design relational contracts with higher powered incentives

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

four formal izable theories of the firm in this essay i define and compare elemental versions of four theories of the firm these elemental theories are distilled from important contributions by hart holmstrom klein williamson and others although these contributions have been widely cited and much discussed i have found it difficult to understand the commonalities distinctions and potential combinations of these seemingly familiar contributions in this essay therefore i attempt to clarify these issues in three steps i begin with informal summaries of the theories then turn to simple but formal statements of each elemental theory and finally nest the four elemental theories in an integrative framework

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

creating holdup through vertical integration fisher body revisited abstract general motors s gm s 1926 acquisition of fisher body has long served as a cornerstone of hold up arguments for vertical integration this paper utilizes primary historical evidence to make three related claims first it shows that gm s initial investment in fisher body occurred primarily to gain access to the fisher brothers specialized human assets second it shows that holdup was not the cause of gm s purchase of fisher body instead the primary factors leading to vertical integration were gm management s fears over the fisher brothers impending departure coupled with problems of financing new body plants finally i show that while holdup was not an issue prior to integration the fisher brothers successfully held up gm after they became employees far from reducing opportunistic behavior vertical integration increased gm s vulnerability to rent seeking behavior based in human asset specificity

tests of equilibrium macroeconomics using contemporaneous monetary data abstract this paper uses contemporaneous monetary data to carry out econometric tests of the equilibrium approach to modelling the relation between monetary disturbances and macroeconomic fluctuations the theoretical analysis introduces into an equilibrium macroeconomic model the availability of preliminary data on current monetary aggregates and the process of accumulation of revised monetary data the econometric analysis tests two hypothesis derived from this extended model one hypothesis concerns the neutrality of perceived monetary policy the econometric results imply rejection of this hypothesis the other hypothesis concerns the non neutrality of errors in preliminary monetary data the econometric results fail to reject the contrary of this hypothesis these tests provide strong evidence against the reality of the equilibrium approach

lawyers asleep at the wheel the gm fisher body contract in the analysis of vertical integration by contract versus ownership one event has dominated the discussion general motors gm merger with fisher body in 1926 the debates have all been premised on the assumption that the 10 year contract between the parties signed in 1919 was a legally enforceable agreement however it was not because fisher s promise was illusory the contract lacked consideration this note suggests that gm s counsel must have known this it raises a significant question in transactional engineering what is the function of an agreement that is not legally enforceable

forecastable money growth revisions a closer look at the data the data for preliminary and revised u s money growth data are reexamined the findings contrast with those of the previous literature which has concluded that the data revisions behave like classical measurement errors this paper finds that the revisions are forecastable which contradicts the random measurement hypothesis as well as the efficient forecast hypothesis although ill behaved in this manner it is possible that the announcements represent observations rather than forecasts however the evidence suggests that they are a mixture of the two this finding offers a potential explanation for the failure of the data to show significant real effects of money growth revisions

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data