Knowledge that Transforms

A general theory of voting, which explains under what conditions voting will be chosen as a means for allocating resources and how the constitution that governs the voting will be structured is presented. It is hypothesized that developers of voting organizations will structure their organizations in order to maximize the value of shares sold by minimizing the expected costs of wealth transfer and decision making in the voting organization. Implications regarding the allocation of votes and assessments within the organization, the domain of voting decisions, and the optimal voting rule are tested with data on the constitutional structure of condominium homeowner associations.

Journal Article Propitious Selection Get access David Hemenway David Hemenway Harvard School of Public Health Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 105, Issue 4, November 1990, Pages 1063–1069, https://doi.org/10.2307/2937886 Published: 01 November 1990

This paper describes a simple model of labor disputes based on the hypothesis that unions use strikes to infer the profitability of the firm. The model posits the existence of a negatively sloped resistance curve between wages and strike duration. In addition, it offer a series of predictions relating wage and strike outcomes to changes in the expected profitability of the firm and changes in the alternative opportunities of striking workers. These implications are tested using data on wage outcomes, strike probabilities, and strike durations for a large sample of collective bargaining agreements.

Do referees employed by journals merely screen acceptable from unacceptable manuscripts or are they charged with an additional value-adding responsibility vis-à-vis the papers they review? Drawing from editorial correspondence provided by survey respondents, I address this question by examining the relationship between citations of published papers and comments provided by reviewers and editors. Referees' comments demonstrate a positive impact on subsequent citation of papers, while comments made by editors show no such impact. Value-adding by editors appears to derive principally from efficient matching of papers with reviewers.

The vast majority of Individual Retirement Account contributions represent net new saving, based on evidence from the quarterly Consumer Expenditure Surveys (CES). The results are based on analysis of the relationship between IRA contributions and other financial asset saving. The data show almost no substitution of IRAs for other saving. Estimates are based on a flexible constrained optimization model, with the IRA limit the principal constraint. The implications of this model for saving in the absence of the IRA option match very closely the actual non-IRA financial asset saving behavior prior to 1982. IRA saving does not show up as other financial asset saving in the pre-IRA period.

In this paper a party with private information can verifiably disclose some, but not all, of his information. The optimal amount of discretion to allow the informed party is studied. That is, should the informed party be allowed unlimited discretion in choosing which elements of his information set to disclose, or should restrictions be imposed that limit this discretion? The model is formulated in the spirit of a “persuasion game.” It is demonstrated that under certain circumstances, rules that limit discretion increase the informativeness of disclosures and thus improve economic decisions.

This study uses tax return data for U. S. nonfinancial corporations for the period 1971–1982 to estimate the importance of restrictions on the ability of firms to use tax credits and to obtain refunds for tax losses. Our results suggest that the incidence of such unused tax benefits increased substantially during the early 1980s, though we do not find these increases attributable to increased investment incentives during that period. We present estimates of the marginal tax rate on interest payments which take into account unused tax benefits and emphasize the importance of distinguishing current tax payments from marginal tax rates in estimating the incentive to invest.

In declining industries capacity must be reduced in order to restore profitability. Who bears this burden? Where production is all or nothing, there is a unique subgame-perfect equilibrium: the largest firms exit first [Ghemawat and Nalebuff, 1985]. In this paper firms continuously adjust capacity. Again, there is a unique subgame-perfect equilibrium. All else equal, large firms reduce capacity first, and continue to do so until they shrink to the size of their formerly smaller rivals. Intuitively, bigger firms have lower marginal revenue and correspondingly greater incentives to reduce capacity. This prediction is supported by empirical findings.

This paper provides empirical evidence on the information in the term structure for longer maturities about both future inflation and the term structure of real interest rates. The evidence indicates that there is substantial information in the longer maturity term structure about future inflation: the slope of the term structure does have a great deal of predictive power for future changes in inflation. On the other hand, at the longer maturities, the term structure of nominal interest rates contains very little information about the term structure of real interest rates. These results are strikingly different from those found for very short-term maturities, six months or less, in previous work. For maturities of six months or less, the term structure contains no information about the future path of inflation, but it does contain a great deal of information about the term structure of real interest rates. The evidence in this paper does indicate that, at longer maturities, the term structure of interest rates can be used to help assess future inflationary pressures: when the slope of the term structure steepens, it is an indication that the inflation rate will rise in the future and when the slope falls, it is an indication that the inflation rate will fall. However, we must still remain cautious about using the evidence presented here to advocate that the Federal Reserve should target on the term structure in conducting monetary policy. A change in Federal Reserve operating procedures which focuses on the term structure may well cause the relationship between the term structure and future inflation to shift, with the result that the term structure no longer remains an accurate guide to the path of future inflation. If this were to occur, Federal Reserve monetary policy could go far astray by focusing on the term structure of interest rates.

A growing body of evidence indicates that liquidity constraints could affect a substantial proportion of U. S. consumers, but little is known about why these constraints might exist. An important, but little-explored, issue is the relationship between inter vivos intergenerational transfers and liquidity constraints. These transfers can ease borrowing constraints. Empirical transfer patterns match those predicted from a model in which transfers are allocated to liquidity-constrained consumers. In particular, the distinction between current and permanent incomes of potential recipients is a key aspect of private-transfer behavior. The findings have important implications for our understanding of consumer behavior.