a political economy model of congressional careers our main goal is to quantify the returns to a career in the united states congress we specify a dynamic model of career decisions of a member of congress and estimate this model using a newly collected dataset given estimates of the structural model we assess reelection probabilities estimate the effect of congressional experience on private and public sector wages and quantify the value of congressional seat moreover we assess how an increase in the congressional wage or the imposition of term limits would affect the career decisions of politicians and the returns from a career in congress

women as policy makers evidence from a randomized policy experiment in india this paper uses political reservations for women in india to study the impact of women s leadership on policy decisions since the mid 1990 s one third of village council head positions in india have been randomly reserved for a woman in these councils only women could be elected to the position of head village councils are responsible for the provision of many local public goods in rural areas using a dataset we collected on 265 village councils in west bengal and rajasthan we compare the type of public goods provided in reserved and unreserved village councils we show that the reservation of a council seat affects the types of public goods provided specifically leaders invest more in infrastructure that is directly relevant to the needs of their own genders

ethics laws and the outside earnings of politicians the case of alabama s legislator educators this paper has reported evidence on the returns to legislating in particular we examined the distributional impact of a provision of alabama s code of ethics which allows sitting state legislators to be on the payroll of public institutions of higher education using salary and educational budget data for 1987 88 we found that public funding per student for the junior and senior colleges in the state which employ legislators as educators is significantly higher than that received by comparable institutions

upgrading traditional technologies in small scale industry clusters collaboration and innovation adoption in indonesia there is by now sufficient evidence that small scale industry clusters matter in developing countries this article intends to contribute to the discussion on cluster transformation by focusing on innovation adoption in a roof tile cluster in indonesia clustering allows small scale enterprises to grow in riskable steps by sharing the costs and risks through collaboration using data from longitudinal field surveys we find that technological change is not only a matter of comparing costs and benefits of technologies but also a matter of access collaboration among leaders is crucial in innovation adoption when technological indivisibilities play a role in our case study it appears that joint action should be viewed as a means to an end only it was given up in favour of traditional hierarchies in the cluster as soon as possible

market based empirical research in accounting a review interpretation and extension a decade and a half of the most concerted and ambitious research effort in accounting history is evaluated here it is the search into the relationship between publicly disclosed accounting information and the consequences of the use of this information by the major group of usersequity investors as such consequences are reflected in characteristics of common stocks traded in major exchanges this research effort known as market based accounting research mbar obtained its impetus from major developments in finance theory during the late 1950s and early 1960s these were the portfolio selection theory and its offspring the capital asset pricing model capm and the concept of informationally efficient capital markets ecm subsequent developments in information economics agency theory and optimal incentive signaling models were quickly incorporated into mbar while the impetus to this line of research came from other disciplines accounting was not only a beneficiary but also to a modest extent a benefactor mbar is relevant to the study of capital market efficiency the capm information economics and regulation this contribution distinguishes mbar from most accounting areas whose contributions to other disciplines are negligible in

excess capacity cyclical production and merger motives some evidence from the capital markets the theoretical foundations of merger are weak and ad hoc however recent advances in the theory of the firm pave the way for a construct that may help alleviate this problem the purpose of this article is to explore the theory of cost in search of a stronger though not necessarily general theory of merger firms sometimes face demand insufficient to support production at the cost minimizing rate they respond by producing more slowly and periodically idling their facilities 2 this implies that intermittent excess capacity might prompt a firm to expand its product line through merger to reduce idle capacity and minimize production costs in this article we present evidence that these cost related issues are an empirically important motive for merger differentiating between so called cost based and monopoly mergers presents a problem of considerable magnitude for antitrust law enforcement authorities 3 potentially a means of acquiring market power merger

firms fiscal years size and industry abstract most u s corporations choose their fiscal years to coincide with the calendar year we document that the larger the firm the more likely it is to begin its fiscal year in january this finding holds across industries

on the diversification observability and measurement of estimation risk this paper reexamines how risk return relationships are affected by investor uncertainty about the exact parameters of the joint rate of return distribution we attempt to clarify results relating to three central issues first we address the issue of diversification focusing on an apt factor model framework second we discuss the observability of estimation risk and describe research experimental designs that should encompass the existence of estimation risk and reveal it in the data finally we suggest exploiting contemporaneous return observations on high and low information securities to aid in the measurement of return parameters for low information securities

nonstationary expected returns abstract recent evidence reveals significant negative serial correlation in aggregate market wide stock returns we extend this result to relative market adjusted returns demonstrating negative serial correlation in five year returns we then test two competing explanations 1 market mispricing and 2 changing expected returns in an efficient market the tests are conducted using the capital asset pricing model to estimate relative returns the evidence suggests that negative serial correlation in relative returns is due almost entirely to variation in relative risks and therefore expected relative returns through time we document substantial relative risk shifts particularly for extreme performing stocks

predisclosure information firm capitalization and security price behavior around earnings announcements several studies on the relationship between earnings reports and security price behavior provide evidence suggesting that a significant portion of the information revealed through earnings reports is reflected in security prices prior to the report month e g ball and brown 1968 and brown and kennelly 1972 this has been attributed at least partly to the existence of other more timely sources of information which allow market agents to forecast earnings prior to their release the evidence above reflects an average finding across all firms one question of interest is whether there are significant systematic crosssectional differences in the security price reactions to earnings announcements of firms which are associated with specific firm characteristics that lead to differential amounts of predisclosure information this study focuses on firm size capitalization as one such characteristic a firm

risk return and equilibrium a revisit this paper reports the results of tests of the major implications of the two parameter capital asset pricing model the findings indicate that the relationship between stock returns and systematic risk contains important nonlinearities during 1935 82 these nonlinearities cannot be ascribed to previously documented anomalies related to firm size or january seasonality moreover the test results appear to be sensitive to the choice of the proxy for the market portfolio

mps for sale returns to office in postwar british politics many recent studies show that firms profit from connections to influential politicians but less is known about how much politicians financially benefit from wielding political influence we estimate the returns to serving in parliament using original data on the estates of recently deceased british politicians applying both matching and a regression discontinuity design to compare members of parliament mps with parliamentary candidates who narrowly lost we find that serving in office almost doubled the wealth of conservative mps but had no discernible financial benefits for labour mps conservative mps profited from office largely through lucrative outside employment they acquired as a result of their political positions we show that gaining a seat in parliament more than tripled the probability that a conservative politician would later serve as a director of a publicly traded firm enough to account for a sizable portion of the wealth differential we suggest that labour mps did not profit from office largely because trade unions collectively exerted sufficient control over the party and its mps to prevent members from selling their services to other clients

the turn of the year in canada a number of investigators have reported that january stock returns in the u s exceed returns for other months of the year this paper documents a similar finding for canadian stocks over the period 1951 1980 however canada did not introduce a capital gains tax until 1973 and the paper reports that january returns in canada exceed returns for other months of the year before and after this date thus these data do not support the tax loss selling pressure hypothesis as the entire explanation for the turnof the year effect in stock returns nor by implication do they support the tax lossselling pressure hypothesis as the complete explanation for the small firm effect in u s stocks returns recently keim 9 has reported that returns on nyse and ase firms with small market values exceed by significant margins returns on firms with large market values this result was previously reported by banz 1 and reinganum 11 but keim s analysis shows that most of the excess return for small firms is concentrated in january indeed it is concentrated in the first two weeks in january roll 13 also documents this phenomenon and investigates a number of possible explanations for it 2 after rejecting several possible nonexploitable explanations roll is left with year end tax loss selling pressure of the sort discussed by branch 2 dyl 5 and givoly and ovadia 6 as the most likely explanation of this result according to the tax loss selling pressure hypothesis toward the end of the year stockholders sell stocks that have declined in price during the year investors do this to take advantage of the opportunity to write off capital losses against ordinary income in computing their federal income taxes the year end sell off exerts downward pressure on stock prices as soon as the tax and calendar year ends the selling pressure is relieved and stock prices quickly rebound to their equilibrium levels roll 13 presents some evidence consistent with this hypothesis specifically he finds a negative correlation between stock returns in january and returns over the previous 12 months that is stocks that decrease in value during the year tend to be big gainers in january roll also finds that

crossovers dividends and the size effect the size effect may have been the result of high stock volatility and low dividend payments suppose an equity market is partitioned into a large stock index and a small stock index and suppose that over a given period of time each of the indexes retains its share of the total market capitalization price volatility will cause some stocks to cross over from one index to the other which will result in higher returns for the small stock index and lower returns for the large stock index dividend payments by large companies could offset the effect of the crossovers but they have historically been insufficient to do so hence the size effect

does remuneration affect the discipline and the selection of politicians evidence from pay harmonization in the european parliament we study the harmonization of the base pay for the members of the european parliament meps prior to this reform implemented in 2009 base pay was aligned with that of national parliamentarians causing large differences in pay between the meps representing 27 member states based on detailed information on individual meps between 2004 and 2011 we find that the reform which introduced an exceptional base pay increase of 200 per national delegation on average has a positive incentive effect on in office effort proxied by the number of speeches written declarations and reports drafted however more generous remuneration is associated with higher rates of absenteeism with respect to political selection we find that higher pay also raises reelection rates the composition of the pool of meps in terms of ex ante quality approximated by formal education previous political experience in elected office and occupational background is however unaffected if we restrict our attention to newly elected meps a salary increase is related to fewer meps with previous political experience at the highest national level

the production and inventory behavior of the american automobile industry understanding inventory movements is central to an understanding of business cycles this paper presents an empirical study of the behavior of inventories in the automobile industry it finds that inventory behavior is well explained by the assumption of intertemporal optimization with rational expectations the underlying cost structure appears to have substantial costs of changing production as well as substantial costs of being away from target inventory thelatter being a function of current sales given this cost structure whether inventory behavior is stabilizing or destabilizing depends on the characteristics of the demand process in the automobile industry inventory behavior is destabilizing the variance of production is larger than the variance of sales

working or shirking expenses and attendance in the uk parliament this paper studies the determinants of mps expense claims and of their attendance at parliamentary meetings using a multiple regression framework we correlate the expenses with three sets of variables constituency characteristics political variables and individual characteristics we then look at the ratio of parliamentary expenses claimed to votes cast in parliament as a crude measure of value for money this take on the data provides a somewhat benign view of the usage of expense claims we use the results to reflect on two views of the motivation of mps the public choice view and the public service view

higher pay worse outcomes the impact of mayoral wages on local government quality in peru abstract in this paper i study how wages earned by local politicians affect local government quality to identify the effects i use caps imposed by the peruvian central government on mayoral wages as an excluded instrument the results show that mayoral wages do not improve government performance in particular there is a negative impact on public investment implementation and on performance goals set by the central government moreover there is no evidence of a positive effect on politician selection municipal bureaucratic capacity and political effort wages do strongly affect the local political landscape increasing political competition and reducing political support for the mayor these changes may help explain the drop in performance as local authorities may face more political obstacles when implementing their policy agenda overall the results show that higher politician wages need not improve local government quality

paying politicians theory and evidence this paper looks at the theory behind the idea that paying politicians better will improve their performance the paper lays out a political agency model with adverse selection and moral hazard where politicians are subject to two period term limits this model provides a number of predictions about how the pay of politicians affects agency problems we also consider what happens when the pool of politicians is endogenous the main ideas in the model are confronted with data on u s governors jel d72 j33

taxes and stock return seasonality evidence from the london stock exchange prior to the introduction of capital gains taxes seasonality is not detected in the returns of firms that traded on the london stock exchange however after the imposition of a capital gains tax the british stock return data exhibit apparent monthly effects in both jan uary and april additional analysis reveals that while the april effect is consistent with the tax loss selling hypothesis the january effect cannot be attributed solely to the introduction of capital gains taxation furthermore the authors efforts indicate that much caution should be exercised when interpreting studies that compare results from non u s data sources with those from u s data copyright 1987 by the university of chicago

misspecification of capital asset pricing this study documents empirical anomalies which suggest that either the simple one period capital asset pricing model capm is misspecified or that capital markets are inefficient in particular portfolios based on firm size or earnings price e p ratios experience average returns systematically different from those predicted by the capm furthermore the abnormal returns persist for at least two years this persistence reduces the likelihood that these results are being generated by a market inefficiency rather the evidence seems to indicate that the equilibrium pricing model is misspecified however the data also reveals that an e p effect does not emerge after returns are controlled for the firm size effect the firm size effect largely subsumes the e p effect thus while the e p anomaly and value anomaly exist when each variable is considered separately the two anomalies seem to be related to the same set of missing factors and these factors appear to be more closely associated with firm size than e p ratios

the association between accounting earnings and security returns for large and small firms abstract the differential information hypothesis advanced by atiase 1980 states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size this study examines two corollaries of that hypothesis first security prices of large firms anticipate accounting earnings earlier than security prices of small firms second for a given level of unexpected earnings the cumulative abnormal returns of small firms exceed those of large firms the results are generally consistent with atiase s hypothesis

the aftermarket performance of small firm initial public offerings abstract the dream of many entrepreneurs is to some day take his or her growing small firm public and to thereby become the ceo of a publicly traded corporation currently entrepreneurs are continuing to utilize initial public offerings ipos as a viable source of venture financing ipos also represent a viable mechanism for harvesting venture capital and entrepreneurial investments the touted entrepreneurial benefits of taking a company public include the abilities to borrow additional funds return to the public equity market negotiate mergers without depleting cash the potential for enhanced personal wealth and so forth investors in small firm public equity issues are often motivated by the potential for discovering another apple computer or perhaps an ibm at the ground floor this study empirically examines the aftermarket returns of small publicly held firms that have issued initial public offerings aftermarket returns refers to stock returns immediately after a stock begins trading the study specifically examines two questions first is there a positive risk return relationship for small firm aftermarket returns where higher firm risk will generate higher aftermarket return second will aftermarket returns show on industry effect where certain industries will automatically generate higher returns answers to these questions will affect the strategic financial alternatives available to entrepreneurs both before and after going public and will also affect the decisions of investors interested in financing small public corporations the research findings indicate that entrepreneurs planning to take younger firms public will probably not have available to them numerous subsequent financial alternatives utilizing corporate stock if the true aftermarket performance of their stock is taken into consideration likewise investors in small firm public issues may also be disappointed in the aftermarket performance of younger firms a positive risk return relationship where age was a proxy measure of risk did not exist this was true even though the initially quoted returns of these same younger firms may have been substantial on the other hand the aftermarket performance of older firms is typically favorable finally the study suggests that neither entrepreneurs nor investors should bet solely on a particular industry categorization to carry their aftermarket stock performance while certain industries indicated significant positive initial returns aftermarket returns based on industry classification were generally not statistically significant investors should therefore always exercise firmspecific due diligence and research before investing in small firm public equity issues since the variance of their aftermarket market returns tends to be large

mandated accounting changes and debt covenants the case of oil and gas accounting abstract the relationships among mandated accounting changes bond covenants and security prices has been the focus of several studies these studies have provided mixed evidence on the existence of a bond covenant effect on security prices this paper suggests that inconclusive prior results are a consequence of inappropriately measuring the default risk of debt using an option pricing framework it is shown that the debt to equity alone is not an adequate measure of default risk in particular both the debt to equity ratio and the total risk of the firm are necessary to adequately model the bond covenant effects of an accounting change these theoretical propositions are supported by the empirical analysis of the security market reaction to changes in oil and gas accounting

collective efficiency growth path for small scale industry this study is concerned with the growth of small local industry in developing countries and explores one particular route for understanding and fostering such growth it focuses on the clustering of firms and the competitive advantage which they derive from local external economies and joint action captured in the concept of collective efficiency following a conceptual discussion the article explores the economic and institutional conditions which enhance or hinder collective efficiency this includes a case study which suggests that responding to opportunity and crisis requires shifting from mere reliance on external economies to joint action and from ascribed to earned trust

labor supply of politicians using data on members of the european parliament meps we examine the impact of salaries on the composition and the behavior of legislators employing a differences in differences approach we exploit the introduction of a law that equalized meps salaries which had previously differed by as much as a factor of 10 increasing salaries raises the fraction of meps who run for re election but decreases the quality of elected meps proxied by college quality salary has no discernible impact on effort or legislation output higher salaries induce more political competition

political careers or career politicians two main career paths are prevalent among politicians in modern democracies there are career politicians i e politicians who work in the political sector until retirement and political careers i e there are politicians who leave politics before retirement and work in the private sector in this paper we propose a dynamic equilibrium model of the careers of politicians in a political economy with a private sector and a political sector where individuals are heterogeneous with respect to their market ability as well as their political skills we characterize the conditions under which the two career paths emerge in equilibrium and establish a number of comparative statics results with respect to the quality of politicians and their careers

value chain clusters and aquaculture innovation in bangladesh abstract farmers adopting and implementing innovations such as new technologies and new products often require collaborative inter segment innovation by other actors in other segments of the value chain such as wholesalers implementing new product innovations such as supply of commercial fish feed and chemicals and buying and marketing non traditional fish species we tested whether the clustering and thus economies of agglomeration with implied lower transaction costs encourage and facilitate farmers to innovate that potential determinant of farmer choices has not been studied in agriculture or aquaculture or indeed the food sector we use a unique data set from our own primary survey of the aquaculture value chain in bangladesh including micro data for 1500 fish farm households and 20 districts 77 villages for meso level data we calculate an index to include both horizontal agglomeration and vertical interconnections among actors in the value chain we find being in an area with a high clustering index is associated with a higher probability of farmers using more modern inputs and growing non traditional commodity fish species controlling for farmers other characteristics as well as proximity to cities

the relation between common stock returns trading activity and market value this study examines the relation between common stock returns trading activity and market value our results indicate that although firm size and trading activity are highly correlated differences in trading activity are not the underlying reason for the firm size anomaly the finding of systematic differences in risk adjusted returns across stocks of firms of different size recent empirical research has revealed systematic differences in risk adjusted returns for common stocks of firms of different sizes as measured by the market value of outstanding common stock see banz 1 and reinganum 5 roll 7 in a recent paper has suggested that the firm size anomaly may result from errors in risk measurement in particular roll suggested that because small firms trade less frequently than large firms risk measures obtained from daily or weekly returns data may seriously underestimate the risk associated with holding a portfolio of small firms in response to roll s conjecture reinganum 6 examined the risk adjusted returns of portfolios formed on the basis of firm size using both the scholes williams 8 and the dimson 2 aggregated coefficient method of estimating portfolio betas and found that regardless of the beta estimation technique employed differences in estimated betas were insufficient to account for differences observed in the returns of size ranked portfolios if reinganum s 6 finding is correct that the firm size effect is not attributable to a misassessment of risk and if smaller firms trade less frequently than do larger firms then firm size may merely proxy for trading activity 1 thus the observed firm size effect may be explained in terms of a liquidity premium associated with inactively traded shares the purpose of this paper is to determine whether or not the firm size anomaly is explicable in terms of differences in the trading activity of common stocks a liquidity premium would provide a logically appealing explanation for the firm size effect tinic 11 demsetz 3 and others have argued that transactions costs vary inversely with trading activity as measured by average number of

the political economy of centralization and the european community since 1972 the share of central government expenditure in total public expenditure has continued to increase in most industrial countries in an international cross section analysis it has a significant positive effect on the share of government spending in gdp the actors who have an interest in centralization are analyzed the dynamics of centralization are attributed to a response asymmetry and two thresholds popitz law of the attraction of the larger budget is tested with respect to the ec commission high ranking politicians come mainly from the smaller member states the voters attitudes toward european unification are analyzed in a pooled regression

legislator voting and shirking a critical review of the literature we set out to critically review the progress in answering two related questions what determines how legislators vote and how can shirking by legislators be measured in the first category the hypothesis that legislators shirk in order to indulge their personal ideological preferences has led researchers astray the theoretical underpinning is shaky on two counts first legislators who indulge their preferences at the expense of their constituents preferences put themselves at a competitive electoral disadvantage second the original two stage procedure used to measure ideological shirking is severely flawed among many other problems the residual measure of shirking implicitly assumes that the median voter is the relevant constituent principal for the legislator agent

pay for politicians and candidate selection an empirical analysis abstract a growing theoretical literature on the effect of politicians salaries on the average level of skills of political candidates yields ambiguous predictions in this paper we estimate the effect of pay for politicians on the level of education of parliamentary candidates we take advantage of an exceptional reform where the salaries of finnish mps were increased by 35 in the year 2000 intended to make the pay for parliamentarians more competitive a difference in differences analysis using candidates in municipal elections as a control group suggests that the higher salary increased the fraction of candidates with higher education among female candidates while we find no significant effect for male candidates

cost of capital to the hospital sector this paper provides estimates of the cost of equity and debt capital to for profit and non profit hospitals in the u s for the years 1972 83 the cost of equity is estimated using alternatively the capital asset pricing model and arbitrage pricing theory we find that the cost of equity capital using either model substantially exceeded anticipated inflation the cost of debt capital was much lower accounting for the corporate tax shield on debt and capital paybacks by cost based insurers lowered the net cost of capital to hospitals

an empirical study of selected factors influencing the decision to list on foreign stock exchanges the growing internationalization of capital markets suggests that an increasing number of firms perceive the benefits of listing their stocks on foreign exchanges as outweighing the related costs many other firms however still limit listing their securities to their domestic exchanges this study investigates the motives for listing abroad the empirical analyses based on data on 481 multinationals indicate significant association between the likelihood of listing abroad and 1 the relative size of a firm in its domestic capital market 2 the ratio of foreign to total sales

are seasonal anomalies real a ninety year perspective in recent years there has been a proliferation of empirical studies documenting unexpected or anomalous regularities in security rates of return in addition to the widely studied relation between firm size and rate of return 1 these include seasonal regularities related to the time of the day harris 1986 the day of the week see ball and bowers 1986 cross 1973 french 1980 gibbons and hess 1981 jaffe and westerfield 1985 keim and stambaugh 1984 and lakonishok and levi 1982 the time of the month ariel 1987 and the turn of the year see haugen and lakonishok 1988 jones pearce and wilson 1987 lakonishok

do better paid politicians perform better disentangling incentives from selection the wage paid to politicians affects both the choice of citizens to run for office and the performance of those who are appointed first if skilled individuals shy away from politics because of higher opportunities in the private sector an increase in politicians pay may change their mind second if the re election prospects of incumbents depend on their in office deeds a higher wage may foster performance we use data on all italian municipal governments from 1993 to 2001 and test these hypotheses in a quasi experimental setup in italy the wage of mayors depends on population size and sharply rises at different thresholds we apply a regression discontinuity design to the only threshold that uniquely identifies a wage increase 5 000 inhabitants exploiting the existence of a two term limit we further disentangle the composition from the incentive component of the effect of the wage on performance our results show that a higher wage attracts more educated candidates and that better paid politicians size down the government machinery by improving efficiency importantly most of this effect is driven by the selection of competent politicians rather than by the incentive to be re elected

event study methodologies and the size effect abstract this study of 862 press recommendations demonstrates that the size effect can distort longer term performance measures and hence event studies relative to similar sized companies post publication performance is neutral however market adjustments the capm and market model with equally or capitalization weighted indexes all produce biased results event studies are most exposed to such bias when the measurement interval is long event securities differ systematically in size or weighting from the index constituents the size effect is large and or volatile and when capm type methodologies are used these distortions are avoided by explicitly controlling for size

overreaction underreaction and the low p e effect although earnings surprises have been studied extensively they have not been examined in the context of contrarian strategies positive and negative earnings surprises affect best high p e and worst low p e stocks in an asymmetric manner that favors worst stocks long term reversion to the mean in which worst stocks display above market returns while best stocks show below market results regardless of the sign of the surprise continues for at least 19 quarters following the news these results are consistent with mispricing overreaction to events prior to the surprise and a corrective price movement after the surprise is consistent with extant research on underreaction the mispricing correction hypothesis explains the superior returns of contrarian strategies noted here and elsewhere in the literature

transaction costs and asset prices a dynamic equilibrium model in this article we study the effects of transaction costs on asset prices we assume an overlapping generations economy with a riskless liquid bond and many risky stocks carrying proportional transaction costs we obtain stock prices and turnover in closed form surprisingly a stock s price may increase in transaction costs and a more frequently traded stock may be less adversely affected by an increase in transaction costs calculations based on the marginal investor overestimate the effects of transaction costs for realistic parameter values transaction costs have very small effects on stock prices but large effects on turnover

survey evidence on diffusion of interest and information among investors abstract questionnaire surveys of institutional and individual investors were undertaken to learn about patterns of communications it was found that direct interpersonal communications are very important in investor decisions questions elicited what fraction of investors were unsystematic and allowed themselves to be influenced by word of mouth communications or other salient stimuli randomly sampled investors were studied as well as investors in stocks whose price had recently increased dramatically contagion or epidemic models of financial markets are proposed in which interest in individual stocks is spread by word of mouth the survey evidence is interpreted as supporting such models

the scope and limits of accounting and judicial courts intervention in inefficient public procurement cost inefficiencies in public procurement tend to come from two sources corruption moral hazard and incompetence adverse selection in most countries audit authorities are responsible for monitoring costs but do not distinguish both sources of inefficiency in their audits judicial courts typically rely on these cost audits but only sanction corruption in a model of public procurement by politicians we study how the respective quality of the two courts affects corruption as well as cost efficiency we find that while better courts have the direct effect of decreasing corruption they may have a negative indirect effect on the abilities of the pool of politicians so that the net effect on cost efficiency is ambiguous

do institutions affect citizens selection into politics traditional political economy has paid primary attention to the structuring of the principal agent relationship between citizens and politicians and the role of competition and institutions in disciplining political agents however as the electoral control of politicians and the credibility of policy commitments are limited this perspective needs to be complemented with an economics of political selection that takes into account the quality of those elected to political office we review the emerging literature which investigates institutional conditions that impact the selection of politicians we discuss pay in politics electoral rules institutions enhancing transparency in politics and institutions which govern dual office holding in different branches of government we argue that further comparative analyses are essential in order to gain an improved understanding of the impact that institutions have on political outcomes not only via the channel of accountability but also via the channel of selection

the seasonal stability of the factor structure of stock returns this paper investigates the month by month stability of a daily returns and correlation coefficients of stock returns b correlation and covariance matrices c number of return generating factors and d the apt pricing relationship the results show that there is a january effect and a small firm effect in stock returns correlation matrices are more stable than covariance matrices but both types of matrices are not stable across months and across the sample groups the number of return generating factors is rather stable most of the time and for most of the sample groups but there is some significant instability that is related to the average correlation coefficients among stocks the apt pricing relationship does not seem to be supported by the two stage process using the maximum likelihood factor analysis the seasonality of common stock returns has received considerable attention in financial economics research studies by officer 23 rozeff and kinney 29 gultekin and gultekin 11 and others have investigated the stock returns of the u s and other countries on a monthly basis they generally have found that on average january returns are significantly higher than the returns for other months banz 1 and reinganum 25 26 have found abnormally high returns in small market value firms and keim 17 has related this to the first few trading days of january schwert 30 points out the current difficulty of explaining these empirical regularities and the need for further investigations several studies have examined seasonality in risk premiums rozeff and kinney 29 found that seasonality appeared in the risk premiums obtained from a twoparameter capm and that january displayed a relatively large risk premium compared with the other months keim 16 also found seasonality in the risk premiums more recently tinic and west 32 examined the risk premiums of the two parameter capm and observed the previously reported seasonality and high january premium they also found that january is the only month in which there is a consistently positive statistically significant relationship between expected return and risk very recently using the two stage procedure with the

options short sales and market completeness this paper presents empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales the significantly higher average level of short interest exhibited by optionable stocks supports the argument that options facilitate short selling we also find significant effects on option prices related to the short interest in the underlying stock we then present evidence that options also increase information efficiency earlier work that is replicated and extended here has suggested that short sale constraints cause stock prices to underweight negative information options appear to reduce that effect

are we witnessing a paradigm shift in the analysis of political competition this presidential address assesses the crisis of the downsian model of political competition in light of the mounting evidence on policy divergence and evaluates the possibility that the new theories of politicians quality and political selection provide an alternative theoretical conceptualization of political competition based on a critical review of the literature and on the author s works on content analysis of policy speeches income redistribution politicians quality and political legislation cycles this address concludes that multidimensional downsian models of political competition are adequate to explain policy divergence and points out the serious theoretical and empirical problems that models of political selection have to solve

microenterprise clusters in rural indonesia industrial seedbed and policy target abstract this paper shows the importance of clustering at early stages of development when clustering is still largely a rural phenomenon and may serve as a survival strategy it argues first that dismally poor but clustered rural microenterprises may have a seedbed function for industrial development and second that clustering policy has brought about some success in indonesia data on more than 4 000 rural clusters provide insights in the various forces behind cluster gestation prosperity and dissolution it is argued that social capital is crucial for the achievement of transaction cost reductions which attract traders to the clustered enterprises ubiquitous search and reach advantages in marketing trigger clustering processes but these advantages diminish with overcrowding further external economies arise from specialization and technical indivisibilities but vary significantly by subsector consequently only specific clusters might benefit from public intervention in technology and organization

electoral institutions and legislative behavior explaining voting defection in the european parliament despite a sophisticated understanding of the impact of electoral institutions on macrolevel political behavior little is known about the relationship between these institutions and microlevel legislative behavior this article reviews existing claims about this relationship and develops a model for predicting how electoral institutions affect the relationship between parliamentarians and their party principals in the context of the european parliament the european parliament is an ideal laboratory for investigating these effects because in each european union member state different institutions are used to elect members of european parliament meps the results of this model tested on four hundred thousand individual mep vote decisions show that candidate centered electoral systems such as open list proportional representation or single transferable vote systems and decentralized candidate selection rules produce parliamentarians independent from their party principals by contrast party centered electoral systems such as closed list proportional representation systems and centralized candidate selection rules produce parliamentarians beholden to the parties that fight elections and choose candidates in the case of the european parliament the national parties

are politicians really paid like bureaucrats abstract we provide the first empirical analysis of gubernatorial pay using u s data for 1950 90 we document substantial variation in the wages of politicians both across states and over time gubernatorial wages respond to changes in state income per capita and taxes we estimate that governors receive a 1 percent pay cut for each 10 percent increase in per capita tax payments and a 4 5 percent increase in pay for each 10 percent increase in income per capita in their states there is evidence that the tax elasticity reflects a form of reward for performance the evidence for the income elasticity of pay is less conclusive but is suggestive of rent extraction motives finally we find that democratic institutions play an important role in shaping pay for example voter initiatives and the presence of political opposition significantly reduce the income elasticity of pay and increase tax elasticities of pay

earning through learning in legislatures this inquiry applies gary becker s theoretical notions of general and specific training to the experiential learning that occurs within political institutions in particular the u s congress in the process we isolate economic facets of these legislative experiences that influence the rental value of human capital derived from congressional training we identify four factors that structure legislators post elective wages pre congressional salary year of entry tenure and variables closely related to general training in congress specifically assignment to powerful legislative committees acquisition of broad skill packages investment in expanding skill set proficiencies and to a lesser extent life cycle driven declines in such investments