Watts (2003) and Ball and Shivakumar (2005) argue that accounting conservatism decreases managerial incentives to make negative net present value investments. I develop and test a new hypothesis that accounting conservatism is associated with managers making less risky investments. I find that under more conservative accounting managers make less risky acquisitions and that firms with accounting-based debt covenants drive this association. This result is consistent with conservative firms avoiding risky investments because of the potential for large losses to trigger debt covenants. Conservatism reducing risk-shifting can in part explain debt holders׳ demand for conservative accounting.

Is there a way to understand why some global environmental externalities are addressed effectively, whereas others are not? The transaction costs of defining the property rights to mitigation benefits and costs is a useful framework for such analysis. This approach views international cooperation as a contractual process among country leaders to assign those property rights. Leaders cooperate when it serves domestic interests to do so. The demand for property rights comes from those who value and stand to gain from multilateral action. Property rights are supplied by international agreements that specify resource access and use, assign costs and benefits including outlining the size and duration of compensating transfer payments, and determining who will pay and who will receive them. Four factors raise the transaction costs of assigning property rights: (i) scientific uncertainty regarding mitigation benefits and costs; (ii) varying preferences and perceptions across heterogeneous populations; (iii) asymmetric information; and (iv) the extent of compliance and new entry. These factors are used to examine the role of transaction costs in the establishment and allocation of property rights to provide globally valued national parks, implement the Convention on the International Trade in Endangered Species of Wild Fauna and Flora, execute the Montreal Protocol to manage emissions that damage the stratospheric ozone layer, set limits on harvest of highly-migratory ocean fish stocks, and control greenhouse gas emissions.

Do labour markets discriminate against workers with particular ethnic-sounding names? We use non-random sorting into inter-ethnic marriage and salient differences between Sephardic and Ashkenazi surnames to evaluate the causal impact of Sephardic affiliation on wages. Using the 1995 Israeli Census, we estimate the effect of a Sephardic sounding surname on wages. We first compare the wages of Israeli Jewish males born to Sephardic fathers and Ashkenazi mothers (SA), who are more likely to carry a Sephardic surname, with the wages of Israeli Jewish males born to Ashkenazi fathers and Sephardic mothers (AS). We find that Israeli labour markets discriminate based on perceived ethnicity: SA workers earn significantly less than their AS counterparts. We then exploit the custom of women to adopt their husbands' surnames to disentangle actual ethnicity from the ethnicity perceived by the market. Consistent with ethnic discrimination based on surnames, we find that it is father-in-law's ethnicity--rather than father's ethnicity--that shapes female wage rates. Finally, we find that labour markets discriminate based on surname only when those names provide additional information about ethnicity. When ethnicity can be discerned from skin tone, surnames do not provide additional explanatory power with respect to wages.

This paper provides direct evidence on the extent of monopsony power in the low-wage labor market by estimating the firm-level elasticity of labor supply for nurse aides in the long-term care (nursing home) industry. Using exogenous variation in hiring induced by the passage of a state minimum nurse staffing law, I find that facilities initially out of compliance with the new law did not have to raise their wage offers relative to their competitors in order to hire more nurses. While this is consistent with perfect competition in simple monopsony models of the labor market, I discuss how the results may be more ambiguous in more complicated models.

Increasing concern over corporate governance has led to calls for more shareholder influence over corporate decisions, but allowing shareholders to vote on more issues may not affect the quality of governance. We should expect instead that, under current rules, shareholder voting will implement the preferences of the majority of large shareholders and management. This is because majority rule offers little incentive for small shareholders to vote. I offer a potential remedy in the form of a new voting rule, the Idealized Electoral College (IEC), modeled on the American Electoral College, that significantly increases the expected impact that a given shareholder has on election. The benefit of the mechanism is that it induces greater turnout, but the cost is that it sometimes assigns a winner that is not preferred by a majority of voters. Therefore, for issues on which management and small shareholders are likely to disagree, the IEC is superior to majority rule.

Executives with poor prior performance may be inclined to take excessive risk in the hope of meeting performance targets, in which case a compensation contract featuring severance pay can be optimal. While prior work has shown that severance can induce managers to take positive NPV risks, we show that it can also keep them from taking negative NPV risks. We show that severance should be contingent on results: complete failure should nullify any payments. We also show that mandating a firm size that is larger than first-best, while costly, can help screen for good managers.

I combine a regression discontinuity design with rich data on academic and labor market outcomes for a large sample of Florida students to estimate the returns to college admission for academically marginal students. Students with grades just above a threshold for admissions eligibility at a large public university in Florida are much more likely to attend any university than below-threshold students. The marginal admission yields earnings gains of 22% between 8 and 14 years after high school completion. These gains outstrip the costs of college attendance, and they are largest for male students and free-lunch recipients.

Financial decision making under time pressure, though ubiquitous, is poorly understood; classical and behavioral finance are silent about the time required for a decision to be made. In an experiment, calibrating allowable decision times to 1, 3, and 5 s, we find that classical moment-based preferences reflect time-invariant sensitivity to expected reward, purchase impulsiveness under extreme time pressure, and decreased aversion to variance and increased aversion to skewness with decision time. These time-varying sensitivities translate into increased probability distortions and decreased risk aversion for gains under prospect theory (PT). Strikingly, moment-based theory provides a better fit than PT.