Erratum

Journal Article A Critique of Size-Related Anomalies Get access Jonathan B. Berk Jonathan B. Berk University of British Columbia Address correspondence to Jonathan B. Berk, Faculty of Commerce, University of British Columbia, 2053 Main Mail, Vancouver, BC V6T 1Z2. Search for other works by this author on: Oxford Academic Google Scholar The Review of Financial Studies, Volume 8, Issue 2, April 1995, Pages 275–286, https://doi.org/10.1093/rfs/8.2.275 Published: 28 May 2015

[This article argues that the size-related regularities in asset prices should not be regarded as anomalies. Indeed, the opposite result is demonstrated. Namely, a truly anomalous regularity would be if an inverse relation between size and return was not observed. We show theoretically (1) that the size-related regularities should be observed in the economy and (2) why size will in general explain the part of the cross-section of expected returns left unexplained by an incorrectly specified asset pricing model. In light of these results we argue that size-related measures should be used in cross-sectional tests to detect model misspecifications.]

Externalities between buyers are shown to induce delays in negotiations between a seller and several buyers. Delays arise in a perfect and complete information setting with random matching even when there is no deadline. While with a deadline we identify delays both for positive and negative externalities, without a deadline we find that (1) when externalities are positive, there exists no SPNE in pure strategies with bounded recall that exhibits delay; (2) when externalities are negative, it may happen that all SPNE with bounded recall have the property that long periods of waiting alternate with short periods of activity: This is the cyclical delay phenomenon.

ECONOMIC POLICY in the 1980s may eventually become the most studied and hotly debated of any in United States history, even including the 1930s. Popular writings about the 1980s economy already abound in hundreds of op-ed pieces, columns, editorials, and books. However, polarization rather than consensus seems to characterize most of these popular writings as witnessed by such contrasting books as Robert Bartley's The Seven Fat Years (1988) with its praise for the policies of the and Paul Krugman's Peddling Prosperity (1994) which finds little if any good that came from them. In fact, most writers have been in one of two camps, either filled with mockery and scorn for the greed decade of the 1980s and the economic policies which define it, or filled with unwavering admiration for the polices of the 1980s which saved America from the ruin caused by the malaise decade in the 1970s. For many there appears to be no more consensus about these policies than at the time they were put into place. Most of the writers on either side of the debate seem to be talking past each other. The 823 page National Bureau of Economic Research Conference volume, American Economic Policy in the 1980s, edited and partly written by Martin Feldstein takes a different approach. It brings together in a single volume a total of 39 economists and policy makers to analyze, discuss, critique, and rebut each others views of U.S. economic policy in the 1980s. What emerges is a thorough and fascinating survey of facts and ideas from this important period in U.S. history. The book deserves to be studied carefully by anyone with a serious interest in economic policy, much like an earlier National Bureau of Economic Research volume-Milton Friedman and Anna Schwartz's A Monetary History of the United States, 1867-1960-it is essential for those interested in earlier periods in the history of U.S. economic policy.

Diversified corporations have been widely criticized as being inefficient innovators with an orientation to maximizing short-term profits. This study investigates this criticism by testing whether the number of new products introduced per R&D dollar is lower among more diversified firms. We find no statistically discernible effect of diversification on innovative efficiency in a sample of 706 research-intensive firms in the 1981–1988 period. This suggests that diversified organizations are rationally designed to minimize incentive and communication problems which may hinder innovation. Consistent with this view, we find that diversified firms are more likely to have separate research and development centers.

The Immigration Reform and Control Act of 1986 (IRCA) represents an attempt to use labor market regulation to control illegal migration into the United States by imposing fines on employers who hire unauthorized workers. Sanctions lower wages directly because they act as a tax on hiring additional workers. In addition, IRCA legalized many longtime illegal aliens. Legalization affects wages by changing the relative supply of authorized and unauthorized workers. This study estimates IRCA's impact on wages of manufacturing production workers in metropolitan areas and finds small but statistically significant effects: sanctions lower wages, while legalization raises them.

The "efficiency wage hypothesis" offers an explanation for employment rents. According to this hypothesis, firms pay wages above the opportunity cost of labor to elicit productivity or quality-enhancing behaviors from employees. Firms pursue this strategy when alternative incentive schemes are unavailable or too costly. Thus, firms will not pay premium wages when employees post sufficiently large performance bonds. This article examines employment rents in a setting where employees post sizable performance bonds-large law firms. Contrary to the efficiency wage hypothesis, we find that associates in these large firms post substantial performance bonds while also receiving substantial, ex ante rents.