This article develops and tests a simple dynamic model of statistical discrimination. The model improves on earlier static models both by allowing ex ante uncertainty about worker productivity to be resolved as on-the-job performance is observed and by generating several testable empirical implications. These predictions are tested using a sample of young men from the National Longitudinal Survey of Youth, producing mixed evidence for the model. The main empirical result is that no black-white wage gap exists at labor force entry but that one develops as experience accumulates, mainly because blacks reap smaller gains from job mobility.

Abstract. The study examines how the risk of exhausting corporate tax liabilities before deducting interest expense affects corporate leverage. It differs from prior studies in three ways: (1) it uses data compiled by the Internal Revenue Service (IRS) from corporate tax returns rather than accounting data; (2) it measures risk of tax exhaustion more accurately; and (3) it adopts a first‐difference time‐series approach, so that firms act as their own control between adjacent years. These methodological innovations reduce biases caused by measurement error and omitted variables that were present in prior research. The results suggest that, all else being equal, high risk of tax exhaustion reduces firms' use of leverage. As well, the study provides the first evidence that personal taxes significantly affect corporate leverage. The effects on leverage decisions of other variables are also tested and the results are consistent with predictions from prior theoretical work.

Résumé. L'auteur examine comment le risque d'épuisement des obligations fiscales des sociétés avant la déduction des intérêts débiteurs influe sur leur niveau d'endettement. L'étude diffère des travaux précédents sous trois aspects: 1) elle fait usage de données compilées par l'Internal Revenue Service (IRS) à partir des déclarations de revenus des sociétés plutôt que de données comptables; 2) elle mesure le risque d'épuisement de l'impôt avec plus de précision; et 3) elle fait appel à une méthode reposant sur les séries chronologiques et le calcul des différences d'ordre 1, de sorte que les sociétés servent d'élément d'autocontrôle entre années successives. Ces innovations méthodologiques réduisent les distorsions attribuables à l'erreur de mesure et aux variables omises que l'on retrouvait dans les travaux précédents. Les résultats donnent à penser que, toutes choses étant égales par ailleurs, le risque élevé d'épuisement de l'impôt amène les sociétés à réduire leur utilisation du levier financier. L'étude fournit également des données confirmant pour la première fois que les impôts des particuliers influent de manière sensible sur le niveau d'endettement des sociétés. Les effets des décisions relatives au niveau d'endettement sur d'autres variables font également l'objet de tests dont les résultats confirment les prévisions énoncées dans les travaux théoriques précédents.

This article examines the responses of black and white workers to their employer's relocation from downtown Detroit to suburban Dearborn. Estimates of move and quit probabilities demonstrate that white employees whose commutes lengthened because of the relocation were more likely to move, but no more likely to quit, than white employees whose commute shortened. Black employees whose commutes lengthened were more likely to both move and quit in the wake of the relocation. In effect, the restrictions on black residential choice imposed by segregation forced approximately 11.3% of black workers to quit in the wake of the relocation.

An efficient method is developed for pricing American options on stochastic volatility/jump-diffusion processes under systematic jump and volatility risk. The parameters implicit in deutsche mark (DM) options of the model and various submodels are estimated over the period 1984 to 1991 via nonlinear generalized least squares, and are tested for consistency with $/DM futures prices and the implicit volatility sample path. The stochastic volatility submodel cannot explain the “volatility smile” evidence of implicit excess kurtosis, except under parameters implausible given the time series properties of implicit volatilities. Jump fears can explain the smile, and are consistent with one 8 percent DM appreciation “outlier” observed over the period 1984 to 1991.

[An efficient method is developed for pricing American options on stochastic volatility/jump-diffusion processes under systematic jump and volatility risk. The parameters implicit in deutsche mark (DM) options of the model and various submodels are estimated over the period 1984 to 1991 via nonlinear generalized least squares, and are tested for consistency with /DM futures prices and the implicit volatility sample path. The stochastic volatility submodel cannot explain the "volatility smile" evidence of implicit excess kurtosis, except under parameters implausible given the time series properties of implicit volatilities. Jump fears can explain the smile, and are consistent with one 8 percent DM appreciation "outlier" observed over the period 1984 to 1991.]

Simultaneity between prisoner populations and crime rates makes it difficult to isolate the causal effect of changes in prison populations on crime. To break that simultaneity, this paper uses prison overcrowding litigation in a state as an instrument for changes in the prison population. The resulting elasticities are two to three times greater than those of previous studies. A one-prisoner reduction is associated with an increase of fifteen Index I crimes per year. While calculations of the costs of crime are inherently uncertain, it appears that the social benefits associated with crime reduction equal or exceed the social costs of incarceration for the marginal prisoner.

This study examines the association between stock returns and foreign GAAP earnings versus earnings adjusted to U.S. GAAP. Using a sample of foreign firms with common stock or American Depositary Receipt (ADR) traded in U.S. exchanges, we compare the returns-earnings relations between U.S. and foreign GAAP-based earnings. Results based on the JA test indicate that earnings based on foreign GAAP are more closely associated with contemporaneous stock returns than earnings reconciled to U.S. GAAP. We find evidence that our results may be driven by institutional factors which are specific to foreign markets.