It is demonstrated that the risk premia on stock in an overlapping generations model with risk-averse agents are bounded above zero.

Under fairly general conditions, ordinary least squares and linear instrumental variables estimators are asymptotically normal when a regression equation has nonstationary right hand side variables. Standard formulas may be used to calculate a consistent estimate of the asymptotic variance-covariance matrix of the estimated parameter vector, even if the disturbances are conditionally heteroskedastic and autocorrelated. So inference may proceed in the usual way. The key requirements are that the nonstationary variables share a common unit root and that the unconditional mean of their first differences is nonzero.

This paper establishes an inequality that may be used to test the null hypothesis that a stock price equals the expected present discounted value of its dividend stream, with a constant discount rate.The inequality states that if this hypothesis is true, the variance of the innovation in the stock price is bounded above by a certain function of the variance in the innovation in the dividend.The bound is valid even if' prices and dividends are nonstationary.The inequality is used to test the null hypothesis, for some long term annual U.S. stock price data.The null is decisively rejected, with the stock price innovation variance exceeding its theoretical upper bound by a factor of as much as twenty.The rejection is highly significant statistically.Regression diagnostics and some informal analysis suggest that the results are more consistent with there being speculative bubbles in the U.S. stock market than with a failure of the rational expectations or constant discount rate hypothesis.

In this study, we investigate whether the security market reaction to the announcement of lower than expected earnings (bad news earnings) is dependent on the fiscal quarter of the announcement (earlier quarters versus fourth quarter). Such dependence could arise from the provisions of generally accepted accounting principles which allow extensive use of managers' fiscal-year expectations when formulating interim cost estimates. These provisions provide managers with a potential means of delaying bad news earnings until the fourth-quarter earnings announcement. Support for the view that managers delay the release of bad news is provided by recent research on the timing of information releases (e.g., the release of bad earnings news, bad dividend news, and bad nonearnings news).' Since managers have the means (through generally accepted accounting principles for interim reporting) and the tendency (as suggested by the empirical evidence on the timing of information releases) to delay bad news, it seems plausible to hypothesize a larger security

Poppers falsificationism is apparently being adopted as an Ideal by accounting researchers. For example, Christenson [1983] has criticized Watts and Zimmerman's [1978, 1979] theories for not conforming to Poppers approach. This paper argues that Poppers falsificationism should not be viewed as an attainable ideal by accounting researchers, and that standard of rigor and research and experimental design are sufficient to support Christenson's criticisms without recourse to Poppers methodology.

Economies are studied where labor contracts, even without changing real allocations, can make equilibria appear different. One basic example is that wage observations generated by long-term employment contracts are biased measures of theoretical market wages. This idea is analyzed in a dynamic, stochastic, economic model, including both overlapping generations of finite-lived workers and infinite-horizon employers, so that the implications for business cycle, life cycle, and cross-sectional phenomena can be explicitly addressed. Understanding contracts in this way potentially allows us to reconcile several ostensibly anomalous aspects of the data with equilibrium theory.

In a recent article (Yew-Kwang Ng, 1987), Ng demonstrates that taxes on goods whose utility is derived entirely from their market value (diamond goods) can provide revenue to the government with no cost to the taxpayers aside from the administrative costs of collecting them. Such a tax decreases the quantity of the good produced while proportionally increasing the value per unit quantity. Since the utility of the good depends only on its value, the smaller quantity produced (after the tax is imposed) produces the same total utility to consumers as the previous larger quantity. The revenue collected by the government is paid, in effect, from the reduced cost of producing a smaller quantity of the good. Ng mentions a number of earlier discussions of goods whose utility comes in part from their price. He is apparently unaware of an analysis which is both much earlier and much closer to his than any he cites. In Chapter 13 of the Principles of Political Economy, David Ricardo wrote:

There are qualifications to the theoretical comparison between Health Maintenance Organizations (HMOs) and conventional insurance (CI), presented in a recent contribution to this Review by Yael Benjamini and Yaov Benjamini (1986). These qualifications make difficult the acceptance, as an unambiguous prediction of economic theory, the authors' conclusions regarding the relative attractiveness of the two methods of insurance to groups of individuals with heterogeneous demands. The authors' arguments are summarized as follows. For homogeneous insureds, an HMO can resemble ideal medical insurance depending on the extent to which the prearranged medical care provided in each health state approximates the desired level for the homogeneous group. Under such conditions, an HMO would be superior to a CI plan in that it is free of the moral that causes a welfare loss under the latter. However, if insureds are heterogeneous in terms of tastes, or any other factor that affects... a welfare loss will also result under the HMO. Because the quantity of medical care provided for a given health state is fixed for an HMO, it cannot satisfy the divergent medical care demands of all insureds in a heterogeneous group. In contrast, the greater flexibility afforded by CI enables insureds with divergent demands to more closely achieve their desired levels of medical care consumption. The welfare loss due to moral hazard is assumed to be little affected by divergent demands, and no other potential effects of demand heterogeneity on the desirability of CI are mentioned. The implication of the authors' analysis is that greater heterogeneity among insureds generally increases preferences for a CI plan over an HMO.' The analysis presented by Benjamini and Benjamini (1986) contains two omissions that pertain to the effect of heterogeneous demand on the desirability of a CI plan. First, heterogeneous demand causes cross-subsidization under a CI plan over and above that due to the incidence of health state. Low demanders subsidize high demanders under CI, whereas, no such cross-subsidization exists under HMOs. This makes ambiguous the effect of heterogeneous demand on general preferences for the two methods of insurance. Second, there appears to be no theoretical basis for assuming that the size of the welfare loss under CI is virtually unaffected by heterogeneous demand. Heterogeneous demand can be shown to increase the welfare loss under a CI plan when this loss is more accurately measured. Thus, the effect of heterogeneous demand, at least in theory, is for this reason much more ambiguous than the Benjamini and Benjamini article implies. The first point is demonstrated with the use of Figure 1. A single, precisely defined unhealthy state, X, and the divergent medical care demands of two representative individuals, A and B, are assumed. A and B are identical in terms of health risk but have differing demands for medical care because of differences in income, tastes, etc. Their respective demands for medical care under a specific CI plan are depicted in Figure 1. Zero administrative costs and a coinsurance rate of .2 are assumed. The price per unit of care is assigned a value of 10 and is equal to marginal cost, which is assumed constant. Under these constraints, individual A de-