Accounting data, Economist, Investments, Accounting methods

Recently, there has been an increased interest in the role that bankruptcy or ruin plays in the valuation process. Several authors have discussed this subject (Gordon [17], Quirk [27], and Smith [35]) and some have constructed theoretical models attempting to show how the probability or risk of ruin introduces an element of risk into valuation (for example, Bierman [5], Borch [8], Tinsely [37]). The question of corporate survival is, therefore, central to the financial considerations of the firm. None, however, has attempted empirical tests of the role of such a probability in valuation.

This paper develops an exact theoretical test of the presence or absence of a filter effect for a portfolio of securities and a general number of different filter sizes. It is a natural development from Praetz [8], which obtained exact expressions for the mean and variance of rates of return of the investment strategies under filter tests assuming the underlying stochastic process is a random walk. These expressions showed that expected returns from filter strategies are, in fact, less than the return from a buy-andhold alternative with which filter returns are usually compared.

The laws and the reasons for them, 502.—The economists and repeal, 503.—Why the laws were repealed, 515.

[The concepts of aggregation and disaggregation appearing in some recent literature are compared.]

[This paper proves that for majority voting over multidimensional alternative spaces, the majority rule intransitivities can generally be expected to extend to the whole alternative space in such a way that virtually all points are in the same cycle set. In other words, given almost any two points in the alternative space, it is possible to construct a majority path which starts at the first, and ends at the second. It is shown that for the intransitivities not to extend to the whole space in this manner, extremely restrictive conditions must be met on the frontier (or boundary) of the cycle set. Similar results are shown to hold for any social choice rule derived from a strong simple game. These results hold under fairly weak assumptions on individual preferences: individuals need only have continuous utility representations of their preferences such that no two individuals' preferences coincide locally. The results seem to rule out the possibility, at least in models of interest to economists, of using the transitive closure of the majority relation as a useful social choice function. They also imply that under any social choice rule meeting the conditions assumed here, it is generally possible to design agendas based on binary procedures which will arrive at virtually any point in the alternative space, even Pareto dominated points.]

THIS paper centers on an empirical analysis of the short-run incidence of the corporate income tax. The topic is made interesting by the existence of two major conflicts. First, traditional microeconomic theory suggests that firms will exhibit no short-run response to variations in the corporate tax rate; yet, businesses (whose behavior theory is supposed to describe) generally claim that some response does take place. Second, statistical estimates of the degree of short-run tax-shifting conflict. A study by Musgrave and Krzyzaniak (1963) suggests that firms are successful in avoiding the entire burden of the tax; however, Gordon (1967) concludes that firms bear the entire burden in the short run. The Musgrave and Krzyzaniak (M-K) study has been criticized on the grounds that it did not take sufficient account of cyclical variables that may have an impact on profit rates. Goode (1966), Slitor (1966), and Oakland (1972) have attempted to demonstrate that the absence of demand-pressure variables causes an upward bias in the M-K estimate of tax shifting. Nevertheless, Dusansky has used two-stage least squares to estimate a profit equation in which such influences are incorporated, and has obtained results consistent with the M-K conclusion of full shifting. One of the apparent shortcomings of the studies mentioned above is that they seem to be either unaware of or disinterested in the mechanism of tax shifting.1 The studies consist of the specification and estimation of profit equations in which a tax-shift parameter is specified. But this technique yields no information with regard to the tax-effects on the decision variables of the firms in question. Traditional tax literature considers two possible means of shortrun shifting:2 forward-shifting (accomplished through variations in product-prices) and backward-shifting (carried out through changes in factor-prices). Obviously, non-zero overall shifting requires that either forward-shifting or backward-shifting (or both) is carried out. Thus, the Musgrave and Krzyzaniak conclusion of full overall shifting implies that product-prices and/or factor-prices must be sensitive to variations in the tax rate. But, because of the use of the reduced-form estimation procedure, one cannot even begin to translate their findings into a reasonable guess concerning which of these prices are affected. And Gordon's conclusion of zero shifting could conceivably be the result of offsetting changes in product-prices and factorprices. It seems plausible to suggest that one should be concerned with several dimensions of taxresponse, rather than merely the end (net) result. In a later exchange between the authors of the first two studies cited above,3 Musgrave and Krzyzaniak take up this point by suggesting that the most reasonable approach to the controversy would involve the specification and estimation of a structural model in which price, wage, and shifting behavior are (1968, p. 1360). This paper is, in essence, a response to that suggestion. In section II, an estimated model is presented in which the potential vehicles of short-run shifting (prices and wages) are specified as endogenous variables. This treatment allows us to trace through the short-run effects of variations in the tax rate. In sections III and IV the effects of the tax on the endogenous variables are computed from the reduced form of the system, and these results are translated into measures of overall shifting and wageand price-responses. Then, in section V, conclusions are drawn. Received for publication September 18, 1975. Revision accepted for publication April 20, 1978. * San Diego State University. Thanks for financial support are due to the Center for Public Economics at San Diego State. Another objection is that both papers tend to be ambiguous with respect to the rationale behind shifting behavior. This point is taken up in my previous paper (Sebold, 1970). 2 Not all types of response to the tax need be categorized as ,'shifting. This point will be discussed later in this paper. 3 See Gordon (1968) and Musgrave and Krzyzaniak (1968).

variables-precisely the case examined by Gerkinghe finds that moments of the finite-sample distribution for the TSLS estimator exist only up to the number of overidentifying restrictions. In the context of equations (1) all structural equations are exactly identified. It follows that none of the moments of this distribution exist. One may obtain parameter estimates, but associated tests of significance are simply not meaningful. The empirical results established by Gerking must be questioned on these grounds. It should also be recognized that any estimator used to obtain structural coefficients in this model must ensure that both the input and the output identities are satisfied. When coefficient estimates are obtained they must be such that implied interindustry flows (Z13 = a^X1) are consistent with the equality of gross output and gross outlay. Without this constraint, comparative static results based on input-output coefficients are not meaningful.

W HILST centralists may clamour for direct emission controls and marketeers may favour tax refinements to the price structure of traded goods, their common concern to beat pollution would require of them a practical control policy, namely, a list of emission levels for pollutants or the specific rates of taxes that they would propose. Diligent, but isolated, studies of particularly offensive industries may deflect enquiry away from those unobtrusive production activities with such offenders in their chains of dependent suppliers, so failing to reveal their true pollution status. Partial equilibrium studies will certainly lack the broad comparability which equitable interference by the state demands. The overriding superiority of the input-output approach lies in its systematic description of the environmental and economic repercussions, both direct and indirect, of pollution emission standards and taxes. Using a convenient arithmetic example, Professor Leontief (1970) has shown that the inclusion of pollution generation and its control within an extended input-output model is analytically simple. Pollutants are produced as bi-products of industrial activity, and the aggregate generation of each pollutant is controlled by a specified tolerance limit, without regard for spatial impact. Abatement activities are defined to absorb surplus pollution, at the cost of intermediate (manufactured) inputs and value-added. This present paper arises from the author's work' with the United Kingdom Input-Output model, and seeks to extend Leontief's example, and place his pricing recommendations within a broader context. Although Leontief assumes a economy to facilitate direct solution by matrix inversion, the U.K. model is not essentially square, and its solution requires a choice among alternative techniques of industrial production and pollution abatement and, in broader terms, between economic consumption and pollution. These dilemmas are synthesized by enjoining Gross National Product as the objective criterion to a linear programme. So that Leontief's simple arithmetic might be retained, the same square economy is assumed for numerical purposes, but special investigation is made into the opportunity costs of environment protection, the financial consistency of national accounts, and self-financing pollution taxes.