This article examines skill gaps between immigrants and native‐born Americans and generational progress achieved by different immigrant ethnic groups. Evidence of a widening skill gap is not strong. While wage data show a pronounced fall in relative wages of “recent” immigrants, significant independent contributors to that decline are a widening age gap and the increasing price of skill. When attention shifts to legal migrants, the evidence is that legal migrants are, at a minimum, keeping up with native‐born Americans. I find that the concern that educational generational progress among Latino immigrants has lagged behind other immigrant ethnic groups is unfounded.

This paper develops a model to answer the question whether a bank should hold a share of the equity of a borrowing firm. The model shows that a small equity stake held by the bank can have a significant and positive impact on the lending relationship. The benefit of bank equity participation arises from the reduced ability of the bank to extract rents from the firm in multiple rounds of financing. This, in turn, improves the firm’s incentive to make investments in profitable projects that require future outside finance. The benefit is likely to be significant for small to medium size firms, growth firms, and firms with ongoing capital needs. The paper addresses, from a corporate finance perspective, the current debate about whether banks should be allowed to own equity stakes in corporations – and how large these equity stakes should be.

Consider a heterogeneous agent matching model in which the payoff of each matched individual is a fixed function of both partners' types. In a 1973 article, Becker showed that assortative matching arises in a frictionless setting simply if everyone prefers higher partners. This paper shows that if finding partners requires time-consuming search and individuals are impatient, then productive interaction matters. Matching is positively assortative—higher types match with higher sets of types—when the proportionate gains from having better partners rise in one's type. With multiplicatively separable payoffs, these proportionate gains are constant in one's type, and "block segregation" arises, a common finding of the literature.

The determination of how to distinguish between unemployment and nonparticipation is important and controversial. The conventional approach employs a priori reasoning together with self-reported current behavior. This paper employs an evidence-based classification of labor force status using information about the consequences of the behavior of the nonemployed. We find that marginal attachment—defined as desiring work, although not searching—is a distinct labor market state, lying between those who do not desire work and the unemployed. Furthermore, important heterogeneities exist within these nonemployment states. Two subsets of nonparticipants—both engaged in waiting—display behavior similar to the unemployed.

We introduce and solve a new class of “downward-recursive” static portfolio choice problems. An individual simultaneously chooses among ranked stochastic options, and each choice is costly. In the motivational application, just one may be exercised from those that succeed. This often emerges in practice, such as when a student applies to many colleges or when a firm simultaneously tries several technologies. We show that such portfolio choice problems quite generally entail maximizing a submodular function of finite sets—which is NP-hard in general. Still, we show that a greedy algorithm finds the optimal set, finding first the best singleton, then the best single addition to it, and so on. We show that the optimal choices are “less aggressive” than the sequentially optimal ones, but “more aggressive” than the best singletons. Also, the optimal set in general contains gaps. We provide some comparative statics results on the chosen set.

Existing studies of the effects of college quality on wages typically rely on a single proxy variable for college quality. This study questions the wisdom of using a single proxy given that it likely contains substantial measurement error. We consider four econometric approaches to the problem that involve the use of multiple proxies for college quality: factor analysis, instruments variables, a method recently proposed by Lubotsky and Wittenberg, and a GMM estimator. Our estimates suggest that the existing literature understates the wage effects of college quality and illustrate the value of using multiple proxies in this and other similar contexts.

We compare US firms’ earnings with reconciled earnings for cross-listed non-US firms. Non-US firms’ earnings exhibit more evidence of smoothing, greater tendency to manage towards a target, lower association with share price and less timely recognition of losses. Firms from countries with weaker investor protection show more evidence of earnings management, suggesting that SEC regulation does not supplant the effect of local environment. There is more evidence of earnings management for firms reconciling to US GAAP than for those preparing local accounts in accordance with US GAAP, but both show more evidence of earnings management than US firms.

Growing evidence suggests that extraordinary average returns may be obtained by trading equity index options, and that at least part of this abnormal performance is attributable to volatility and jump risk premia. This paper asks whether such priced risk factors are alone sufficient to explain these average returns. To provide an answer in as general as possible a setting, I estimate a flexible class of nonlinear models using all S&P 500 Index futures options traded between 1986 and 2000. The results show that priced factors contribute to these expected returns but are insufficient to explain their magnitudes, particularly for short‐term out‐of‐the‐money puts.

We study corporate philanthropy using an original database that includes firm-level data on dollar giving, giving priorities, governance, and managerial involvement in giving programs. Results provide some support for the theory that giving enhances shareholder value, as firms in the same industry tend to adopt similar giving practices and firms that advertise more intensively also give more to charity. But much of our evidence indicates that agency costs play a prominent role in explaining corporate giving. Firms with larger boards of directors are associated with significantly more cash giving and with the establishment of corporate foundations. Consistent with effective monitoring by creditors, firms with higher debt-to-value ratios give less cash to charities and are less likely to establish foundations. The empirical work considers the impact of industry regulation on giving and controls for state philanthropy laws and fiduciary responsibility laws.

This paper contributes to portfolio selection methodology using a Bayesian forecast of the distribution of returns by stochastic approximation. New hierarchical priors on the mean vector and covariance matrix of returns are derived and implemented. Comparison’s between this approach and other Bayesian methods are studied with simulations on 25 years of historical data on global stock indices. It is demonstrated that a fully hierarchical Bayes procedure produces promising results warranting more study. We carried out a numerical optimization procedure to maximize expected utility using the MCMC (Monte Carlo Markov Chain) samples from the posterior predictive distribution. This model resulted in an extra 1.5 percentage points per year in additional portfolio performance (on top of the Hierarchical Bayes model to estimate μ and Σ and use the Markowitz model), which is quite a significant empirical result. This approach applies to a large class of utility functions and models for market returns.