In the Sixties, the qualified stock option was the predominant form of long-term incentive compensation contract for major industrial firms in the U.S. In the early Seventies these same firms replaced their tax-qualified stock option plans with non-qualified sttock options and later modified these plans to include a variety of new contingent compensation arrangements, some of which were based on accounting numbers instead of stock prices. This paper develops the hypothesis that tax considerations play an important role in explaining the form of compensation contracts. The pattern and timing of changes in the compensation plans of the top 100 industrial firms provides evidence consistent with the tax hypothesis.

Recently, agency theory has become popular as a means of explaining the structure of contracts between various classes of economic agents. Oftentimes the contracts of interest represent sharing rules for the payoffs that result from some production activity. In the usual two-party model of the contracting problem, one party designated the principal delegates authority for decisions affecting production to another party designated the agent. Typically, the assumptions made about the consequences of the agent's actions are that they are associated with effort on the part of the agent for which the agent (but not the principal) has disutility, and that greater effort will result in higher payoffs from production in every state of nature. Moral hazard is then introduced by assuming that the principal is unable to observe the agent's effort, or to infer what effort the agent applied through an ex post observation of the payoff that results.

Samuel S. Stewart, Jr., Discussion: The Impossibility of Efficient Decision Rules for Firms in Competitive Stock Market Economies, The Journal of Financial and Quantitative Analysis, Vol. 17, No. 4, Proceedings of the 17th Annual Conference of the Western Finance Association, June 16-19, 1982, Portland, Oregon (Nov., 1982), pp. 575-577

Journal Article The Harvard Department of Economics from the Beginning to World War II Get access Edward S. Mason Edward S. Mason Thomas S. Lamont University Professor, Emeritus Harvard University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 97, Issue 3, August 1982, Pages 383–433, https://doi.org/10.2307/1885870 Published: 01 August 1982

The macro literature presents conflicting evidence on the effects of price controls. In this study, the fact that the macro-economic effect of wage and price controls is the aggregation of the micro-economic effects is used to implement a different approach to measure the effects of price controls. The effect of price controls is inferred from examining the impact of discretionary regulatory decisions on the equity values of individual firms during Phase II of Nixon's Economic Stabilization Program. The empirical results indicate that violators of the regulations incurred significant abnormal losses that were unrelated to the explicit penalties. This suggests that implicit penalties were imposed on offending firms. The analysis of price increase decisions provides weak evidence that these Price Commission decisions had an impact on equity values.

While the literature in finance is replete with studies on stock betas, bond betas have, to this day, not attracted much attention. This is quite understandable because much of the finance literature addresses stock betas in the context of the single period Capital Asset Pricing Model (CAPM). In the single period model, the risk-free rate (if it exists) is assumed to be constant over the period in question. Since the interest rate is fixed and investors are required to hold these default-free bonds over the entire period, interest rate risk, and, consequently, systematic risk for bonds do not exist. However, if the constant risk-free rate assumption is relaxedand investors are allowed to trade “intra period, ” (say continuously), Merton [4] has argued that an Intertemporal Capital Asset Pricing Model can be derived. Using Merton's framework, Jarrow [3] has recently derived a systematic risk measure for bonds. The primary intent of this paper is to investigate the effect of yield changes on the systematic risk of bonds. As we will demonstrate, the impact of yield changes on bond betas depends on several (sometimes complex) relationships between yields, duration, and bond prices. We derive conditions under which bond betas increase/decrease and show that the elasticity of duration with respect to yields and the sign of the initial beta of a bond will determine the manner in which yield changes affect bond betas.

This paper examines the relationship between the ownership control status of firms and the accounting methods they adopt. The arguments of Watts and Zimmerman's positive theory are integrated with those of managerial economists to generate the prediction that management controlled firms are more likely than owner controlled firms to adopt accounting methods which increase reported earnings. This prediction is inconsistent with Fama's hypothesis that the market for managerial talent will prevent management controlled firms from acting differently than owner controlled firms. This paper compares the depreciation methods used by a sample of management and owner controlled firms for financial reporting purposes. The comparison considers and controls for the factors of firm size, leverage, and the depreciation method used for tax reporting purposes. The comparison reveals that there is a significant difference in the depreciation methods adopted by management controlled and owner controlled firms for financial reporting purposes.

We develop a model in which a monopolist uses differences across consumers in their valuation of time to imperfectly price discriminate. Though it is customary to analyse price discrimination problems by the calculus of variations after postulating a continuum of types, we assume a finite number of types and exploit the geometry and duality of the contract set and the structure of the programming specification. We analyse in detail the qualitative properties of the model's solution and show by construction that our results exhaust the implications of the model for equilibrium contract pairs. We show that imperfect discrimination is not bounded in welfare terms between perfect discrimination and single-price monopoly and that the deadweight loss, consumer surplus and output comparisons between single-price monopoly and imperfect discrimination are ambiguous.