cssi/SciSciGPT-SciSciNet huggingface dataset:
Managerial Incentives, Fraud, and Monitoring

In response to equity compensation contracts that encourage managers to commit fraud as well as provide productive effort, owners may choose to monitor the manager to limit the fraud. We examine the firm owners’ incentives to perform both ex ante monitoring, such as internal controls, and ex post monitoring, such as audits, in a model that includes the reputational damages caused when a fraud is discovered. We provide conditions under which the owner prefers either more or less monitoring, and examine the effect of additional monitoring on the optimal equity package and equilibrium level of fraud.
Optimum Centralized Portfolio Construction with Decentralized Portfolio Management

Many financial institutions employ outside portfolio managers to manage part or all of their investable assets. It is well recognized that outside portfolio managers are unwilling to share security information with each other or with the centralized decision maker and this in general will lead to sub-optimal portfolios. In this paper, we derive an implementable set of rules under which a central decision maker can make optimal decisions without requiring decentralized decision makers to reveal estimates of security returns. Furthermore, we derive conditions under which these rules hold and when they do not hold.
Child labor : cause, consequence, and cure, with remarks on International Labor Standards

Although the literature on child labor is enormous it lacks a common theoretical foundation. In this paper analytical survey of this field is provided keeping in mind that this is an area where the primary reason for theorizing is ultimately to influence policy. Overall it is noted that the literature on child labor is an illustration of abundance and anarchy. Although empirical writings on child labor are numerous they are not usually founded on theory. It is argued that there is much that can be done in curbing the issue of child labor. Several theories were studied in this paper including collaborative intervention. Such efforts include public action which alters the economic environment such that the parents of their own accord prefer to withdraw the child from labor force. Another strategy involves the government; a legal intervention is enforcing a total ban on the subject. Although such interventions have good intentions some of them may not be feasible. In general it is better to take economy-wide measures against child labor and if there is to be a sector-specific ban it should be based on the working conditions of that sector rather than the destination of the goods.
Audit committee effectiveness: Perceptions of public company audit committee members post-SOX

Abstract Effective audit committees provide numerous public benefits including better financial reporting and reduced corporate fraud. Prior to the passage of the Sarbanes–Oxley Act (SOX), research identified specific features of audit committee effectiveness, many of which were subsequently included in SOX Sections 301 and 407 regulations on audit committees. Using survey methodology, this study examines the extent to which public company audit committee members believe these effectiveness features are operating within their committees today. Eighty public company audit committee members from a variety of industries completed a survey and indicated that overall, features of effective audit committees are present. A number of areas for potential improvement were noted. By soliciting post-SOX information about audit committee effectiveness from a difficult to access subject pool, our study provides researchers, educators, public company management, and public company boards of directors with an updated understanding of the current state of public audit committee effectiveness. Results from this study can inform policy makers as they consider the adequacy of current regulations for audit committees.
Tropics, germs, and crops: how endowments influence economic development

Abstract Does economic development depend on geographic endowments like temperate instead of tropical location, the ecological conditions shaping diseases, or an environment good for grains or certain cash crops? Or do these endowments of tropics, germs, and crops affect economic development only through institutions or policies? We test the endowment, institution, and policy views against each other using cross country evidence. We find evidence that tropics, germs, and crops affect development through institutions. We find no evidence that tropics, germs, and crops affect country incomes directly other than through institutions, nor do we find any effect of policies on development once we control for institutions.
The Actual Validity of Law

When, and in what sense are laws ever “valid”? Applying republican legal principles to the question of legal validity will demonstrate that the actual validity of a law always ultimately depends on the law’s own underlying moral justification. To see why, one must first disentangle three senses of the word “valid”. Some laws are valid (“actually valid”) because they actually deserve to be obeyed. Some laws are valid (“legally valid”) because a particular legal system asserts that they ought to be obeyed. And some laws are valid (“morally valid”) in the sense that although the legal system in question has not yet made them legally valid, one could morally justify doing so.1
Competition among Exchanges

Does competition among e nancial intermediaries lead to excessively low standards? To examine this question, we construct a model where intermediaries design contracts to attract trading volume, taking into consideration that traders differ in credit quality and may default. When credit quality is observable, intermediaries demand the “ right” amount of guarantees. A monopolist would demand fewer guarantees. Private information about credit quality has an ambiguous effect in a competitive environment. When the cost of default is large (small), private information leads to higher (lower) standards. We exhibit examples where private information is present and competition produces higher standards than monopoly does. I. INTRODUCTION In spite of the general acceptance of the competitive mechanism as an allocation scheme, many observers consider e nancial intermediation an exception. Competition is thought to lead to a “ race to the bottom” in which e nancial intermediaries settle for excessively low levels of contractual guarantees in an attempt to increase volume. Evaluating futures exchanges, a joint report from the Treasury and the Federal Reserve Board, written in the wake of the 1987 crash, states that “ [T]here is sufe cient possibility that at some point SROs [Self Regulatory Organizations] might establish margins that were inconsistent enough to present market problems or set them at levels that might present potential costs to other parties that regulatory approval should be established in all markets.” 1
Empirical investigation of insurance claim dependencies using mixture models

For several years now, there continues to be attention in the modeling of insurance and other similar type of risks, such as the risk of credit default, to incorporate the presence of dependencies. Some of the early papers appearing in the literature demonstrate that for a typical portfolio of such risks, ignoring dependencies can have a direct impact on the tail or extremes of the resulting portfolio loss distribution. The tail of the loss distribution is something not to be ignored by the actuary or the risk manager. To date, in spite of this growing number of papers in the literature on dependence modeling, we find that there is no known published work that provides for an empirical evidence to validate the presence of dependencies in an insurance portfolio. In this paper, we use mixture models, customarily suggested to model dependent credit default risks, to facilitate the investigation of claim dependencies. The empirical data used to calibrate these models came from a portfolio of automobile insurance policies drawn from a randomly selected insurance provider. In order to measure the presence of claim dependencies, one of the most reasonable statistic to use is the relative risk ratio, a measure that is widely popular in medical statistics and is used to gauge how the claim occurrence of a particular insurance risk induces claim of another insurance risk. Our calibration results indicate some presence of positive dependencies; relative risk is in the neighborhood of 1.4 and resulting pair-wise correlation is 0.04. The model naturally extends to capture policyholder heterogeneity through the presence of covariates by introducing mixture models with covariates as explained in this article. Not surprisingly, because the premium is the actuary’s best guess of the degree of riskiness of an insurance risk, at least on an a priori basis, it provides for the single most important factor that influences the presence of claim dependencies.
Discrimination: An interdisciplinary analysis

Discrimination on the basis of race, sex, national origin, etc., is often morally wrong. But should such behaviour be proscribed by legislation, and penalized by fines or jail sentences? This paper argues that such enactments are incompatible with the law of free association, and with the concept of economic liberty and civil rights.
Rational Ignorance, Rational Closed-Mindedness, and Modern Economic Formalism in Contract Law

Rational ignorance is the familiar notion that it would be foolish for an individual to gather and process all possible information. Some information just isn't worth having. Speaking more strictly, some information isn't worth pursuing or processing, because the expected cost of acquiring and assimilating it exceeds its expected value. So as good rational actors, we are better off not knowing some things.1 Despite a name that may seem counterintuitive to nonspecialists, the notion of rational ignorance is mostly unremarkable.2 Even those of us whose
Poverty, Political Freedom, and the Roots of Terrorism

This article provides an empirical investigation of the determinants of terrorism at the country level. In contrast with the previous literature on this subject, which focuses on transnational terrorism only, I use a new measure of terrorism that encompasses both domestic and transnational terrorism. In line with the results of some recent studies, this article shows that terrorist risk is not significantly higher for poorer countries, once the effects of other country-specific characteristics such as the level of political freedom are taken into account. Political freedom is shown to explain terrorism, but it does so in a non-monotonic way: countries in some intermediate range of political freedom are shown to be more prone to terrorism than countries with high levels of political freedom or countries with highly authoritarian regimes. This result suggests that, as experienced recently in Iraq and previously in Spain and Russia, transitions from an authoritarian regime to a democracy may be accompanied by temporary increases in terrorism. Finally, the results suggest that geographic factors are important to sustain terrorist activities.
The Benefits of Visibility Improvement: New Evidence from the Los Angeles Metropolitan Area

This article examines the impact of a specific aspect of air quality—visibility, or the ability to clearly see distant objects—on housing values. Our analysis is based on a data set constructed by matching residential housing sales data from the Los Angeles Metropolitan Area for the period 1980 through 1995 with visibility and other air pollution data and other characteristics. We find that visibility differences are capitalized into housing values, producing a measurable hedonic price gradient. The time-series design facilitates an estimate of the demand for visibility that we use to calculate the benefits of changes in visual range.
A “Selection Model” of Political Representation*

Citizen demands for more accountability and transparency are implicitly grounded in a model of political representation based primarily on sanctions, in which the interests of the representative (in economic terms, the agent) are presumed to conflict with those of the constituent (in economic terms, the principal). A selection model of political representation, as with a selection model of principal-agent relations more generally, is possible when the principal and agent have similar objectives and the agent is already internally motivated to pursue those objectives. If a potential representative's intrinsic goals (overall direction and specific policies) are those the constituent desires and if the representative also has a verifiable reputation of being both competent and honest, a constituent can select that representative for office and subsequently spend relatively little effort on monitoring and sanctioning. The higher the probability that the objectives of principal and agent may be aligned, the more efficient it is for the principal to invest resources ex ante, in selecting the required type, rather than ex post, in monitoring and sanctioning. A selection model is efficient when agents face unpredictable future decisions, are hard to monitor, and must act flexibly. Accountability through monitoring and sanctioning is appropriate to the sanctions model, narrative accountability and deliberative accountability to the selection model. Normatively, the selection model tends to focus the attention of both citizens and representatives on the common interest. In political science the selection model was advanced in the early 1960s as one of the two paths to constituency control, but after the 1970s was eclipsed by the sanctions model in spite of data seeming to indicate that in many circumstances it has greater predictive power. Economists have only recently begun to apply the selection model significantly to politics.
The Impact of Third-Party Financing on Transnational Litigation

Third-party litigation finance is a growing industry. The practice, also termed “litigation lending,” allows funders with no other connection to the lawsuit to invest in a plaintiff’s claim in exchange for a share of the ultimate recovery. Most funding agreements have focused on domestic litigation in Australia, the United Kingdom, and the United States. However, the industry is poised for growth worldwide, and the recent environmental lawsuit brought by Ecuadorian plaintiffs against Chevron demonstrates that litigation funding is also beginning to play a role in transnational litigation. This article, prepared for a symposium on “International Law in Crisis,” speculates about how the growing litigation-finance industry may reshape transnational litigation in the coming decades. It argues that the individual economic incentives created by third-party financing will likely increase the number of transnational lawsuits filed, raise the settlement values of those lawsuits, and spread out the lawsuits among a larger number of countries than was typical in the past. It further hypothesizes that these individual choices about transnational litigation will lead countries to reassess their internal balance of litigation and regulation and will create pressure for greater international coordination of litigation procedure, including transnational forum choice and cross-border judgment enforcement.
Pricing and Investments in Matching Markets

Different markets are cleared by different types of prices: seller-specific prices that are uniform across buyers in some markets and personalized prices tailored to the buyer in others. We examine a setting in which buyers and sellers make investments before matching in a competitive market. We introduce the notion of premuneration values—the values to the transacting agents prior to any transfers— created by a buyer–seller match. Personalized-price equilibrium outcomes are independent of premuneration values and exhibit inefficiencies only in the event of “coordination failures,” while uniform-price equilibria depend on premuneration values and, in general, feature inefficient investments even without coordination failures. There is thus a trade-off between the costs of personalizing prices and the inefficient investments under uniform prices. We characterize the premuneration values under which uniform-price equilibria similarly exhibit inefficiencies only in the event of coordination failures.
Do Electoral Quotas Work after They Are Withdrawn? Evidence from a Natural Experiment in India

Electoral quotas, which are used in more than 100 countries around the world, increase the representation of target groups in legislatures. But do the beneficial effects of quotas persist after they are withdrawn? Answering this question is important because quotas are often thought of as temporary measures, used to improve the lot of particular groups of people until they can take care of themselves. Target groups could secure representation for themselves after quotas lapse as the constraints that previously prevented their effective political voice are mitigated, either by broad social processes or by quotas themselves. Therefore, a thorough accounting of the costs and benefits of quotas must investigate whether quotas themselves can continue to boost the representation of target groups in legislatures after they are withdrawn. This question is particularly important because quotas restrict the opportunities available to nontarget groups and might, in fact, cause a backlash against beneficiaries (Weiner 1978; Wilkinson 2000). Little evaluation of the lasting effects of quotas has been conducted for at least two reasons. First, despite intentions to the contrary, quotas are rarely withdrawn. 1 This makes it difficult to assess what would
Odds and Ends: An Epstein-Inspired Look at Luck

In this essay, written for the Tulsa Law Review's scholarship symposium honoring Richard Epstein, I examine and critique Epstein's views on the legal treatment of good and bad luck.
Product Innovation and Macroeconomic Dynamics

We develop an agent-based macroeconomic model in which product innovation is the fundamental driver of growth and business cycle fluctuations. The model builds on a hedonic approach to the product space and product innovation developed in Georges (A hedonic approach to product innovation for agent-based macroeconomic modeling, 2011).
Mises and the moderns on the inessentiality of money in equilibrium

The challenge of rendering monetary exchange intelligible within a Walrasian general equilibrium framework is well known. Perhaps less well known is the difficulty of integrating monetary and exchange economies in decentralized conceptions of equilibrium, of which the evenly rotating economy of Ludwig von Mises (1949) is an early example. After reviewing the prospect for money in the evenly rotating economy, I survey the modern literature on frictions that make money useful for exchange. While exploring techniques commonly used to generate a useful role for money in this environment, I make a distinction between exchange frictions and epistemic frictions. Although theoretical efforts have largely focused on exchange frictions, recent experimental evidence suggests that epistemic frictions warrant further attention. I conclude that Mises should be seen as a pioneer in this literature, though recent advances demonstrate that the set of frictions capable of rendering money useful is much larger than he envisioned.
The Ninth Amendment in Congress

The Ninth Amendment declares that “[t]he enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.” Scholars have developed a rich literature on the Ninth Amendment, but they have focused nearly exclusively on how courts should treat the amendment’s mysterious unenumerated rights.Other scholars have generated an even richer body of work on constitutional interpretation outside the courts. These scholars have written persuasively about the role of Congress as an important participant in constitutional debate and development. However, this work has largely ignored the Ninth Amendment.This article brings these two lines of inquiry together and finds that there are exciting possibilities at their intersection. Part I briefly discusses current thinking about the Ninth Amendment and about constitutional interpretation outside the courts. Part II explores some of the opportunities that the Ninth Amendment opens up for Congress. The simplest is to expand traditional “negative rights,” but the Ninth Amendment can promote other forms of rights as well. Indeed, Congress already creates rights legislatively; the Ninth Amendment can make that process more conscious in ways that better serve the rights in question. Part III refutes three likely criticisms: that these “rights” are really no more than politically popular ideas; that Congress is not really capable of serious deliberation; and that the Ninth Amendment provides inadequate protection for these rights.
Understanding participant perspectives: Q-methodology in national forest management

Many policy practitioners and theorists have argued that value-free, objective solutions to policy problems do not exist. While participant values and subjective viewpoints influence policy problems, empirically determining participant perspectives and preferences has been a daunting task. This paper demonstrates how Q-methodology, a technique for systematically revealing subjective perspectives, can contribute to better problem identification and definition; estimation and specification of policy option; and selection, implementation, and evaluation of policies. Two case studies in national forest management are reviewed and demonstrate how Q-methodology can (1) identify important internal and external constituencies, (2) define participant viewpoints and perceptions, (3) provide sharper insight into participant-preferred management directions, (4) identify criteria that are important to participants, (5) explicitly outline areas of consensus and conflict, and (6) develop a common view toward the policy. © 1999 by the Association for Public Policy Analysis and Management.
Corporate Law and the Limits of Private Ordering

Solomon-like, the Delaware legislature in 2015 split the baby by amending the Delaware General Corporation Law to authorize forum-selection bylaws and to prohibit charter or bylaw provisions that would shift to the plaintiff defense costs incurred in connection with shareholder suits that were not successfully concluded. The legislature acted after the Boilermakers Local 154 Retirement Fund. v. Chevron Corp ATP Tour, Inc. v. Deutscher Tennis Bund, broadly empowered the board vis-a-vis the shareholders through the board’s power to amend the bylaws. Repeatedly the analysis used by each court referenced the contractual relationship the shareholders had through the articles of incorporation and the bylaws with their corporation. The action of the Delaware legislation hardly puts the important question raised by each opinion to bed: are there limits on the board of directors to act through the bylaws to alter the rights shareholders customarily enjoy? Stated differently, can the board of directors’ authority to amend the bylaws extend to changing both the procedural and substantive relationship shareholders have with the corporation. In examining this question, the article develops two broad points: the shareholder’s relationship is more than just a contract and, even if the relationship was contractual, bedrock contract law does not support the results reached in Boilermakers and ATP Tour, Inc. The article also develops two broad points: the shareholder’s relationship is more than just a contract and, even if the relationship was contractual, bedrock contract law does not support the results reached in Boilermakers and ATP Tour, Inc. In conclusion, the article also uncovers an issued overlooked in the debate over the relative prerogatives of shareholders and the board of directors, namely that bylaws proposed by the board of directors carry a strong presumption of propriety whereas those proposed by shareholders do not.
The Colombian pension system after the reform of 1994: An evaluation

The Colombian pension reform of 1994 introduced aprivately administered defined-contribution programme,which coexists with a reformed public defined-benefitprogramme. This paper gives an overview of the Colombianpension system and evaluates its performance using fourcriteria: (1) effectiveness, (2) efficiency, (3) equity, and(4) sustainability, finding evidence of severe shortcomings.Both effective coverage and benefit levels are low, costs in theprivate programme are high, and there is evidence thatinsured persons are not fully informed about the actualsystem. The system is inequitable and the uninsuredpopulation bears part of the financial burden. The publicprogramme is financially not sustainable. A current reformproposal from the Colombian government addresses only partof the problem.
Promoting renewable energy through capacity markets: An analysis of the Russian support scheme

Abstract Most existing support schemes aim to stimulate the deployment of renewable energy sources in the electricity sector on the basis of the electricity output (MW h) of renewable energy installations. Support is anchored in the electricity commodity market. In contrast to this established approach, Russia intends to promote renewable energy through the capacity market. The idea is to remunerate investors for the installed capacity (MW) of their installations, in particular for the availability of their installations to produce electricity. This article argues that, contrary to the implicit consensus, a capacity-based approach to supporting renewable energy can provide an alternative to the current output-based schemes. Capacity-based schemes limit the incentive that the operators of renewable energy installations currently have under output-based schemes to deliver electricity to the grid even in periods of low demand. These schemes also provide investors with a more predictable income flow. However, to be successful, the regulation of capacity supply – currently designed for flexible power plants – needs to accommodate the specific production patterns of variable renewable energy installations. This paper examines ways to overcome this challenge in Russia and provides more general conclusions on the complex interaction between capacity markets and renewable energy investments.
Civil rights enforcement in the modern healthcare system: reinvigorating the role of the federal government in the aftermath of Alexander v. Sandoval.

The United States Supreme Court's decision in Alexander v Sandoval generated in the Executive Branch only silence and apparent disinterest, despite the fact that no recent case has more urgently commanded the attention of officials charged with administering civil rights laws in the context of Federal spending programs. This article examines the Sandoval decision and its implications for Federal civil rights enforcement activities specifically in the health care arena. The authors argue that regardless of whether Congress reverses Sandoval legislatively, there is a need for a fundamental restructuring of Federal civil rights oversight activities in a health system dominated by Federal spending.
Tariff Incidence in America 's Gilded Age

prices of traded goods relative to nontraded goods. The results suggest that the 30 percent average import tariff gave about a 17 percent implicit subsidy to import-competing producers and effectively taxed exporters at about 10 percent. Tariffs redistributed large amounts of income (about 8 percent of GDP), but the effect on consumers was roughly neutral. F or most of the nineteenth century the United States exported raw materials and food (cotton and tobacco from the South and wheat and corn from the Midwest) and imported manufactured goods. One of the most controversial aspects of U.S. economic policy in the decades after the Civil War was the use of high import tariffs to protect domestic manufacturers (located mainly in the North) from foreign competition. Tariff advocates claimed that high import duties helped American workers by expanding industrial employment and keeping wages high, while also giving farmers a steady demand in the home market for the food and raw materials that they produced. Tariff critics charged that those import duties raised the cost of living for consumers and harmed agricultural producers by effectively taxing their exports, thus redistributing income from consumers and farmers to benefit big businesses and capital-owners in the North. This protectionist trade policy was a contentious issue in American national politics during the Gilded Age of the 1880s. After post-Civil War reconstruction ended with the election compromise in 1877, tariff policy became the major source of partisan conflict: Republicans defended high protective tariffs and Democrats demanded that the tariff be used only to raise revenue. The election of 1888 hinged on the issue of tariff reform, and although the Democratic candidate (Grover Cleveland) won more popular votes, the Republican candidate (Benjamin
Putting Your Money Where Your Mouth Is: The Performance of Earnouts in Corporate Acquisitions

This Article seeks to answer the question whether earnouts really serve to respond to adverse selection, as commonly believed, or if alternatively, do they better address problems created by symmetric uncertainty. To answer this question I conduct difference of means tests for fair value estimates of earnouts at the time of acquisition and during the post-closing period. To the extent sellers rely on earnouts during the pre-contractual period to signal unobservable information about their own quality to an acquirer then post-closing fair value estimates should increase as acquirers confirm seller pre-signing statements. In fact, I do not find significant differences in the fair value disclosures at the time of acquisition and during the post-closing period, which suggests that parties rely on earnouts primarily to resolve the problem of uncertainty rather than adverse selection.
CAT BONDS AND OTHER RISK-LINKED SECURITIES: STATE OF THE MARKET AND RECENT DEVELOPMENTS

This article reviews the current status of the market for catastrophic risk (CAT) bonds and other risk-linked securities. CAT bonds and other risk-linked securities are innovative financial vehicles that have an important role to play in financing mega-catastrophes and other types of losses. The vehicles are especially important because they access capital markets directly, exponentially expanding risk-bearing capacity beyond the limited capital held by insurers and reinsurers. The CAT bond market has been growing steadily, with record amounts of risk capital raised in 2005, 2006, and 2007. CAT bond premia relative to expected losses covered by the bonds have declined by more than one-third since 2001. CAT bonds now appear to be priced competitively with conventional catastrophe reinsurance and comparably rated corporate bonds. CAT bonds have grown to the extent that they now play a major role in completing the market for catastrophic-risk finance and are spreading to other lines such as automobile insurance, life insurance, and annuities. CAT bonds are not expected to replace reinsurance but to complement the reinsurance market by providing additional risk-bearing capacity. Other innovative financing mechanisms such as risk swaps, industry loss warranties, and sidecars also are expected to continue to play an important role in financing catastrophic risk.
Toward Drug Control: Exclusion and Buyer Licensing

The uncertainties associated with the precise nature of legalization regimes and with their expected outcomes sometimes are used to justify the maintenance of drug prohibition. This paper details the role that buyer licensing and exclusion might play in implementing a low-risk, post-prohibition drug regulatory regime. Buyer licensing and exclusion provide assistance to those who exhibit or are worried about self-control problems with drugs, while not being significantly constraining upon those who are informed and satisfied drug consumers. Relative to prohibition, licensing and self-exclusion can be part of a drug regulatory structure that is much more finely tuned to the risks of harms stemming from drug use.
Experimental evidence of how prior experience as an auditor influences managers’ strategic reporting decisions

We design an experiment to examine the influence of audit experience on subsequent reporting decisions when auditors become managers of audited firms. In contrast to the independence issues that can arise when auditors and their clients are related by prior affiliation, we focus this study on the more common case in which auditors assume subsequent employment with other firms’ clients. In a bi-matrix experimental game that captures key features of the strategic tension between auditors and reporters, we find that reporters who have prior experience as an auditor, particularly the experience of having been a diligent auditor, are more sensitive to large penalties for aggressive reporting than are reporters whose experience is exclusively as a reporter. Our results suggest implications for regulators in predicting the effects of reporting penalties and for firms in considering the effects of CPA experience when hiring for reporting positions.
Stag Hunting with the State AG: Anti-Tobacco Litigation and the Emergence of Cooperation Among State Attorneys General

Employing a critical-mass theory of collective action, this article models the emergence of cooperation among state attorneys general in litigation against the tobacco industry. These suits were not independent events, nor was cooperation based on prior agreement among the attorneys general. Rather, cooperation emerged over time as a result of interdependent decision-making, with early lawsuits increasing the likelihood of later suits. The model emphasizes the “production function” of the collective good and the heterogeneity of the attorneys general and their political environments as keys to the development of cooperation. The model is tested against data using event history analysis.
Inducing Leaders to Take Risky Decisions: Dismissal, Tenure, and Term Limits

Abstract How can a principal (employer or voter) induce an agent (worker or politician) to choose the “right” actions if risky actions reveal the agent's decision-making competence and only dismissal can be used as an incentive instrument? We first show that if the principal can commit to a replacement strategy, then optimal mechanisms involve either (i) a probationary period and then indefinite tenure, or (ii) dismissing poorly performing agents but also randomly replacing agents who take nonrevealing actions. When the principal cannot commit, incentives can be improved by imposing term limits on agents. (JEL D72, D82, M51)
Trade interdependence, the international financial institutions, and the recent evolution of sovereign-debt renegotiations

Abstract This paper analyzes the effect of a debtor country’s pattern of trade with commercial creditors’ home countries on the outcome of debt-rescheduling negotiations. The analysis reveals that a debtor country with more market power has greater leverage in a three-way debt-rescheduling negotiation that includes the debtor country, its creditors and the International Financial Institutions (IFIs). The paper also considers the effects of the IFI sovereign-debt policy on the bargaining power of the parties in debt-rescheduling negotiations. Two bargaining frameworks analyzed and compared in the paper represent the negotiation mechanism at different stages of the IFI sovereign-debt policy evolution.
Audit Qualifications of Income‐Decreasing Accounting Choices*

In this study we conduct an experiment to examine how qualifying an income-decreasing accounting change in years of strong financial performance affects financial report users' assessments of strategic reporting, current financial performance, and future financial performance (performance over the next three years). We find that without the qualification, users viewed the income-decreasing accounting change as relatively nonstrategic and that user assessments of current and future performance were not different. In the presence of the qualification, users believed that the accounting change was relatively strategic, and they discounted the income effect of the accounting change. We find further that their assessments of future performance were below their assessments of current performance but no different from the assessments of future performance in the absence of the qualification. Although our findings suggest that audit qualifications encourage users to be skeptical of income-decreasing accounting changes, we find no evidence that they impose negative consequences on management in terms of lower assessments of financial performance.
From Consent to Advice and Consent Cyclical Constraints within the District Court Appointment Process

This study seeks to understand long-standing structural changes within the executive—Senate relationships that govern the judicial appointment process. Utilizing a new source of data that comprises district court appointments from 1901 through 2006, the analysis models the duration of selection and confirmation events to find evidence of interbranch constraint. Temporal variance and heteroskedasticity in these measures suggest that the last century of appointment activity can be divided into four distinct regimes that reflect a repeating cycle of executive independence and senatorial constraint, which in turn helps integrate existing accounts of change and conflict within the appointment process of federal judges.
Calhoun’s concurrent majority as a generality norm

The purpose of this paper is to analyze the political philosophy of John C. Calhoun from the perspective of Virginia Political Economy. Specifically, this paper argues that Calhoun’s theory of the concurrent majority offers a way of operationalizing the “generality norm” of Buchanan and Congleton Politics by principle, not interest: towards nondiscriminatory democracy. liberty fund, indianapolis, (2003 [1988]).The analysis of this doctrine, which holds that constitutional democracy can only be preserved from majoritarian absolutism if minority interests have the power to check the power of majority coalitions, is this paper’s main purpose. The paper also discusses the most plausible way Calhoun’s recommendations can be put into practice in the United States by drawing on insights from his Discourse on the Constitution and Government of the United States, in which he defends the social compact theory of the union and the benefits of federalism.
Measuring the costs of outreach motivational interviewing for smoking cessation and relapse prevention among low-income pregnant women

Economic theory provides the philosophical foundation for valuing costs in judging medical and public health interventions. When evaluating smoking cessation interventions, accurate data on costs are essential for understanding resource consumption. Smoking cessation interventions, for which prior data on resource costs are typically not available, present special challenges. We develop a micro-costing methodology for estimating the real resource costs of outreach motivational interviewing (MI) for smoking cessation and relapse prevention among low-income pregnant women and report results from a randomized controlled trial (RCT) employing the methodology. Methodological standards in cost analysis are necessary for comparison and uniformity in analysis across interventions. Estimating the costs of outreach programs is critical for understanding the economics of reaching underserved and hard-to-reach populations. Randomized controlled trial (1997-2000) collecting primary cost data for intervention. A sample of 302 low-income pregnant women was recruited from multiple obstetrical sites in the Boston metropolitan area. MI delivered by outreach health nurses vs. usual care (UC), with economic costs as the main outcome measures. The total cost of the MI intervention for 156 participants was $48,672 or $312 per participant. The total cost of $311.8 per participant for the MI intervention compared with a cost of $4.82 per participant for usual care, a difference of $307 ([CI], $289.2 to $322.8). The total fixed costs of the MI were $3,930 and the total variable costs of the MI were $44,710. The total expected program costs for delivering MI to 500 participants would be 147,430, assuming no economies of scale in program delivery. The main cost components of outreach MI were intervention delivery, travel time, scheduling, and training. Grounded in economic theory, this methodology systematically identifies and measures resource utilization, using a process tracking system and calculates both component-specific and total costs of outreach MI. The methodology could help improve collection of accurate data on costs and estimates of the real resource costs of interventions alongside clinical trials and improve the validity and reliability of estimates of resource costs for interventions targeted at underserved and hard-to-reach populations.
Managing for Stakeholders, Stakeholder Utility Functions, and Competitive Advantage

A firm that manages for stakeholders allocates more resources to satisfy the needs and demands of its legitimate stakeholders than would be necessary to simply retain their willful participation in the firm's productive activities. We explain why this sort of behavior unlocks additional potential for value creation, as well as the conditions that either facilitate or disrupt the value-creation process. Firms that manage for stakeholders develop trusting relationships with them based on principles of distributional, procedural, and interactional justice. Under these conditions, stakeholders are more likely to share nuanced information regarding their utility functions, thereby increasing the ability of the firm to allocate its resources to areas that will best satisfy them (thus increasing demand for business transactions with the firm). In addition, this information can spur innovation, as well as allow the firm to deal better with changes in the environment. Competitive advantages stemming from a managing-for-stakeholders approach are argued to be sustainable because they are associated with path dependence and causal ambiguity. These explanations provide a strong rationale for including stakeholder theory in the discussion of firm competitiveness and performance. Copyright © 2009 John Wiley & Sons, Ltd.
Go Down Fighting: Short Sellers vs. Firms

This study examines battles between short sellers and firms. Firms use a variety of methods to impede short selling, including legal threats, investigations, lawsuits, and various technical actions intended to create a short squeeze. These actions create short sale constraints. Consistent with the hypothesis that short sale constraints allow stocks to be overpriced, firms taking anti-shorting actions have in the subsequent year very low abnormal returns of about 2% per month. (JEL G14) Short selling can be expensive, difficult, and risky. Impediments to shorting include the expense and difficulty of borrowing stock, legal and institutional restrictions, and the risk that the short position may be involuntarily closed due to recall of the stock loan. If these short sale constraints are sufficiently binding, stocks may become overpriced and thus have low future returns until the overpricing is corrected. By identifying stocks with particularly high short sale constraints, one can identify stocks with particularly low future returns. These constraints are difficult to measure, however, and researchers have struggled to find appropriate data to test the overpricing hypothesis. In this article, I test whether overpricing increases when firms deliberately raise the level of short sale constraints. Firms can take a variety of actions to impede the short selling of their stock. Firms take legal and regulatory actions to hurt short sellers, such as accusing them of crimes, suing them, hiring private investigators to probe them, and requesting that the authorities investigate their activities. Firms take technical actions to make shorting difficult, such as splits or distributions specifically designed to disrupt short selling. Firms can coordinate with shareholders to withdraw shares from the stock lending market, thus preventing short selling by causing loan recall. These battles between short sellers and firms can be extraordinarily acrimonious. The following statement from the sample used in this article
Social Networks and Personal Bankruptcy

This article examines the role of social networks in a household's bankruptcy decision. Social networks may affect a household's bankruptcy decision in many ways: they could provide information about the required paperwork, recommend an attorney, reduce the stigma associated with bankruptcy, or increase awareness of its benefits. Using data from the Panel Study of Income Dynamics (PSID), I exploit county and racial variation to identify network effects. My empirical strategy asks whether being surrounded by others of the same race increases bankruptcy use more for those in racial groups with high filing rates. This methodology allows me to include both county-year and racial-group fixed effects in my regressions. The results strongly confirm the importance of networks in a household's bankruptcy decision.
The Good, the Bad, and the Ugly of Employment Division v. Smith for Family Law

The central holding of Employment Division v. Smith, "that the right of free exercise does not relieve an individual of the obligation to comply with a valid and neutral law of general applicability,” is likely more agreeable to family law scholars than to First Amendment scholars. This is so because First Amendment scholars mostly worry about the liberty of the autonomous individual vis-a-vis the state in the public sphere, whereas family law scholars mostly worry about the vulnerability of dependent persons to abuse by private actors in the home, and therefore generally support extension of state protective authority into private life, where it is especially likely to conflict with religion. This Article explains, however, how two aspects of the Smith opinion, both of which the Court stated in dictum, threatened to undermine this holding in the family law realm and, to a large degree, have done so, to the detriment of children in particular.
The effective tax rate and the pretax rate of return

Abstract This paper presents new estimates of the taxes paid on nonfinancial corporate capital, on the pretax rate of return to capital, and on the effective tax rate. The basic time series show that both the pretax rate of return and the effective tax rate have varied substantially in the past quarter century. An explicit analysis indicates that, after adjusting for different aspects of the business cycle, pretax profitability was between one and 1.5 percentage points lower in the 1970s than in the 1960s. The rate of profitability in the 1960s was also about one-half of a percentage point greater than the profitability in the 7 years of the 1950s after the Korean war. Changes in productivity growth, in inflation, in relative unit labor costs, and in other variables are all associated with changes in profitability. None of these variables, however, can explain the differences in profitability between the 1950s, 1960s and 1970s. Looking at broad decade averages, the effective tax rate and the pretax rate of return move in opposite directions, lower pretax profits occuring when the tax rate is high. There thus appears to have been no tendency for pretax profits to vary in a way that offsets differences in effective tax rates.