"This paper develops a model of the transmission of earnings, assets, and consumption from parents to descendants. The model assumes utility-maximizing parents who are concerned about the welfare of their children. The degree of intergenerational mobility is determined by the interaction of this utility-maximizing behavior with investment and consumption opportunities in different generations and with different kinds of luck. We examine a number of empirical studies for different countries. Regression to the mean in earnings in rich countries appears to be rapid. Almost all the earnings advantages or disadvantages of ancestors are wiped out in three generations." A comment by Robert J. Willis is included (pp. 40-7).

An identified model is not necessary for statistical inference, but ambiguities can arise. This paper examines some simple examples and proposes a framework that distinguishes between the “refutation” and “confirmation” aspects of testing in an unidentified model. One particular problem is the interpretation given to overidentifying restrictions: a common view is that these are somehow not properly testable.

This paper uses arbitrage arguments to calculate the market value of riskless after-tax cash flows. The market value equals the present value of riskless after-tax cash flows discounted at the after-corporate-tax riskless interest rate. The market value equals the adjusted present value of riskless after-tax cash flows only when the incremental debt used in the adjusted present value calculations equals the market value of the remaining after-tax cash flows. Also, the analysis provides valuation formulas when interest and tax rates are certain but not uniform and when interest rates are uncertain.

Abstract. Following a five year moratorium on adoption of interest capitalization by the SEC, the Financial Accounting Standards Board issued SFAS No. 34 mandating that firms previously writing off interest charges related to the construction of assets change to capitalizing those charges. The purpose of this study is to analyze the impact of this change in terms of the security market's reactions both to policy announcements leading up to the promulgation of SFAS No. 34, and to earnings announcements following implementation by affected companies. Significant average market reactions are indicated for two of ten policy announcements before the effects of firm size are considered; however, significance disappears when those effects are removed from excess returns. Although a bias is detected in the forecasts of analysts consistent with less than full revision to include the earnings impact, there is little evidence of market reactions to announcements of those earnings. Résumé. Après un moratoire de cinq ans sur l'adoption de la capitalisation de l'intérêt par la S.E.C., le Financial Accounting Standards Board a émis le bulletin numéro 34 qui demande aux entreprises qui passaient aux dépenses les charges d'intérêts reliées à la construction d'actifs, de les capitaliser. L'objectif de cette étude, est d'analyser l'impact de ce changement (en termes des réactions du marché des valeurs) aux annonces de politiques qui ont conduit à la promulgation du bulletin 34 et aux annonces de bénéfices qui ont suivi l'implantation pour les compagnies touchées. Les réactions du marché en moyenne sont significatives pour deux des dix annonces de politiques, avant de prendre en considération les effets de l'ampleur de la firme; cependant, ce n'est plus significatif lorsque ces effets sont retranchés des rendements excédentaires. Quoiqu'un biais soit détecté dans les prévisions des analystes, en accord avec une révision moins que complète pour inclure l'impact des bénéfices, il y a peu d'évidence des réactions du marché aux annonces de ces bénéfices.

The production smoothing model of inventory behavior has a long and venerable history and theoretical foundations that seem very strong. Yet certain overwhelming facts seem not only to defy explanation within the production smoothing framework, but actually to argue that the basic idea of production smoothing is all wrong. Most prominent among these is the fact that the variance of detrended production exceeds the variance of detrended sales. This paper first documents the stylized facts. Then it derives the production smoothing model rigorously and explains how the model can be amended to make it consistent with the facts. Finally, it reviews the theoretical and empirical evidence and tries to draw some tentative conclusions.

Abstract. Uncertainty or ambiguity about what specific probability to associate with a given event is a problem for auditors and is one that has been shown to influence the decisions of others. While some theories of probability assume this problem away, others have tried to address it in various ways. This paper provides a formal analysis of this question and presents a means of characterizing the ambiguity associated with the probability inference. The measure we present can capture a number of the previously specified approaches to this question while exhibiting some very intuitive conclusions and some well‐known mathematical properties. Résumé. L'incertitude ou l'ambiguïté relative à la probabilité spécifique à attribuer à un événement donné, est un problème pour les vérificateurs et un problème qui a été démontré comme influençant les décisions des autres. Alors que certaines théories de probabilité ne tiennent pas compte de ce problème, d'autres ont essayé de s'y intéresser de différentes façons. Cet article fournit une analyse formelle de cette question et présente un moyen de caractériser l'ambiguïté associée avec l'inférence de probabilité. La mesure que nous présentons reprend un certain nombre des approches déjà existantes sur cette question tout en exposant quelques conclusions très intuitives et quelques propriétés mathématiques bien connues.

This paper examines the influence of risk aversion on the pricing policies of a market maker for securities. It is shown that a market maker's bid-ask spread can be decomposed into a portion for the known limit orders, a risk-neutral adjustment for expected market orders, and a risk adjustment for market order and inventory value uncertainty. It is demonstrated that a risk-averse market maker may set a smaller spread than a risk-neutral specialist. Finally, this paper demonstrates the pervasive role of inventory in affecting both the placement and size of the spread.