This paper overcomes the long-standing problem of measuring motor carriers' service quality by utilizing service quality data collected from shippers. A service quality controlled cost function is estimated for a sample of less-than-truckload motor carriers. It is shown that excluding service quality variables from cost estimation significantly underestimates carriers' scale economies. These scale economies enable large carriers to offer higher quality services at competitive or even lower costs than small carriers. Copyright 1995 by MIT Press.

We analyze a model in which an anomaly is unknown to arbitrageurs until its discovery, and test the model implications on both asset prices and arbitrageurs’ trading activities. Using data on 99 anomalies documented in the existing literature, we find that the discovery of an anomaly reduces the correlation between the returns of its decile-1 and decile-10 portfolios. This discovery effect is stronger if the aggregate wealth of hedge funds is more volatile. Finally, hedge funds increase (reverse) their positions in exploiting anomalies when their aggregate wealth increases (decreases), further suggesting that these discovery effects operate through arbitrage trading.