We make two contributions to the study of interest rates. The first is to characterize their dynamics in a new way. We estimate forecasting relations based on one-period changes in forward rates, which are more easily compared than earlier work on yields to the stationary theory of bond pricing. The second is to approximate these dynamics and other salient features of interest rates with an affine model. We show that models with “negative” factors come closer to accounting for the properties of interest rates, including their dynamics, than multifactor Cox-Ingersoll-Ross models.

During 1984–1996, welfare and tax policy were changed to encourage work by single mothers. The Earned Income Tax Credit was expanded, welfare benefits were cut, welfare time limits were added, and welfare cases were terminated. Medicaid for the working poor was expanded, as were training programs and child care. During this same time period there were unprecedented increases in the employment and hours of single mothers. We show that a large share of the increase in work by single mothers can be attributed to the EITC and other tax changes, with smaller shares for welfare benefit cuts, welfare waivers, training programs and child care programs.

I show that median earnings surprise has shifted rightward from small negative (miss analyst estimates by a small amount) to zero (meet analyst estimates exactly) to small positive (beat analyst estimates by a small amount) during the 16 years, 1984 to 1999. I show that a rightward temporal shift in median surprise from negative to positive describes earnings, but neither profits nor losses. Median profit surprise shifts within the positive quadrant, from zero to one cent per share. Median loss surprise shifts within the negative quadrant from extreme negative (about ‐33 cents per share) to zero. I show that the median surprise for profits exceeds that for losses in every year. I document significant positive temporal trends in both meet and beat analyst estimates for both profits and losses, but I find a greater frequency of profits that either meet or beat analyst estimates in every year. I find a significant positive temporal trend in positive profits that are “a little bit of good news,” and a significant negative temporal trend in managers who report losses that are an “extreme amount of bad news.” My results are robust to the four internal validity threats I consider—namely temporal changes in: (1) analyst forecast accuracy, (2) the mix of earnings of one sign preceded by earnings of another sign four quarters ago, (3) the timeliness of the most recent analyst forecast, and (4) the I/B/E/S definition of actual earnings. I find that managers of growth firms are relatively more likely than managers of value firms to report good news profits. I show that when they do report positive profit surprises, managers of growth firms are more likely to report “a little bit of good news” in every year.

Psychological experiments demonstrate that repeated pairings of a cue and a consumption good eventually create cue-based complementarities: the presence of the cue raises the marginal utility derived from consumption. In this paper, such dynamic preferences are embedded in a rational choice model. Behavior that arises from this model is characterized by endogenous cue sensitivities, costly cue-management, commitment, and cue-based spikes in impatience. The model is used to understand addictive/habit-forming behaviors and marketing. The model explains why preferences change rapidly from moment to moment, why temptations should sometimes be avoided, and how firms package and position goods.

The majority of U. S. temporary help supply (THS) firms offer nominally free, unrestricted computer skills training, a practice inconsistent with the competitive model of training. I propose and test a model in which firms offer general training to induce self-selection and perform screening of worker ability. The model implies, and the data confirm, that firms providing training attract higher ability workers yet pay them lower wages after training. Thus, beyond providing spot market labor, THS firms sell information about worker quality to their clients. The rapid growth of THS employment suggests that demand for worker screening is rising.

This paper presents a theory of parliamentary systems with a proportional representation electoral system, a formateur selected based on party representation in parliament, and parties that cannot commit to the policies they will implement once in government. Government formation involves efficient proto-coalition bargaining, and elections yield unique strong Nash equilibrium outcomes. Depending on the status quo, minimal-majority, surplus, or consensus governments can form. If parties and voters are myopic and the status quo is subject to shocks, consensus governments and centrist policies occur only in a crisis. Otherwise, governments are minimal winning, and policies reflect only the preferences of the government parties.

We analyze the stock market’s valuation of electric utility “stranded costs” (i.e., costs that might become unrecoverable under deregulation), and investigate whether stranded costs that have arisen as a result of voluntary firm business decisions are valued differently from those that are more directly linked to regulatory mandates. Further, we study whether investor valuations differ across jurisdictions. Finally, we examine the relation between investor valuation of stranded costs and the decision by utilities to make stranded cost‐related disclosures in their financial statements voluntarily. We find that investors anticipate that, on average, approximately 10% of total stranded costs will be borne by utility shareholders. Stranded costs arising from voluntary operating or investing decisions made by utilities are valued more negatively than those associated with mandatory power purchase contracts, consistent with investors assigning a higher recovery probability to the latter. Investor valuations of stranded costs associated with utility generating investments do not differ systematically across jurisdictions. We find that stranded costs are valued less negatively for voluntary disclosers not just in the year of disclosure but also in the preceding two years, implying that it is not disclosure per se that favorably influences valuation. Voluntary disclosers operate in jurisdictions that have more clearly established stranded cost recovery mechanisms, suggesting that both stranded cost disclosure and valuation are prompted by reduction in uncertainty about recoverability.

In his path-breaking 1937 article, Ronald Coase first identified the determinants of a firm's scope as an important research question. Although Coase's question initially attracted little attention, it has emerged over the last 25 years as a central issue in industrial organization. Much of the literature on firm scope since Coase uses the transaction-cost economics approach (henceforth, the TCE) pioneered by Oliver Williamson (1975, 1979, 1985) and Benjamin Klein et al. (1978). The TCE starts with the assumption that market transactions are plagued by incomplete contracts and the development of lock-in among trading partners. Lock-in leads the value of the relationship to exceed the value of the trading partners' outside alternatives creating what Klein et al. called quasi-rents. Contractual incompleteness gives contracting parties the ability to engage in opportunistic behavior to increase their share of these quasi-rents, leading to efficiency losses in market transactions. Internal procurement, on the other hand, involves its own inefficiencies, most notably the costs of bureaucracy and lowpowered incentives. According to the TCE, the optimal organizational form is found by comparing the efficiencies of these distinct transactional modes. Its primary prediction is that, as market transactions become characterized by increasing levels of quasi-rents and incompleteness in contracts, the likelihood of integration should increase. More recently, a great deal of attention has focused on an alternative theory of firm scope, the property-rights theory (henceforth, the PRT), pioneered by Sanford Grossman and Oliver Hart (1986) and Hart and John Moore (1990) (see also Hart, 1995). Like the TCE, the PRT starts with the assumption that contracts are incomplete and that lock-in often develops among trading partners. It then focuses on how ownership of physical assets, which confers residual rights of control over the assets, alters the efficiency of trading relations. In the process of doing so, the PRT produces a theory that differs from the TCE in three ways. The first is methodological rather than substantive: the PRT is substantially more formal than the (largely verbal) TCE. Second, the PRT focuses on distortions in ex ante investments, in contrast to the ex post haggling costs that are a major focus of the TCE.1 Third, the PRT assumes that efficiency losses are of the same nature in all ownership structures. That is, ownership of physical assets affects the parties' abilities to engage in opportunistic behavior not only in market transactions, but also within the firm. A very large empirical literature exists lending support to the TCE (for one survey, see Howard A. Shelanski and Peter G. Klein [1995]). In a typical study, some measure of lock-in, such as the specificity of the product procured or investments made, is related to the choice of whether to integrate. The strong association that this literature has found between specificity and integration has made the TCE