Over the years there have been frequent changes in unemployment insurance (UI) benefits. Such changes could influence spells in progress as well as future spells. If individuals anticipate changes, they are likely to adjust their behavior. The effect of changes in benefits on unemployment duration, therefore, will be difficult to predict accurately without accounting for individual expectations. This article investigates the extent to which individuals anticipate changes in UI entitlement. The results suggest that individuals have significant, although not perfect, foresight about changes in UI provisions. Assuming perfect foresight might represent actual expectations more closely than assuming no foresight.

Research using U. S. manufacturing data finds that job destruction fluctuates more over time than job creation, but some new data indicate that this behavior is not shared in growing sectors, where job creation varies more. An explanation for this finding based on the interaction between (S,s)-type adjustment and trend employment growth delivers some tight predictions for the relationship between trend growth and the volatility of creation relative to destruction. Although it scores some notable successes, the simple (S,s)-based model augmented with a low-frequency trend cannot fully account for the strength of the empirical relationship between relative gross-flow volatility and trend growth across one-digit industries.

This paper develops a general approach to characterizing optimal income tax and enforcement schemes. Our analysis clarifies the nature of the interplay between tax rates, audit probabilities and penalties for misreporting. In particular, it is shown that for a variety of objective functions for the principal the optimal tax schedule is in general concave (at least weakly) and monotonic; the marginal tax rates determine the audit probabilities; and less harsh penalties lead to higher enforcement costs. Our results imply that there exists a tradeoff between equity and efficiency considerations in the enforcement context which is similar to that in the moral hazard context for tax policy.

This paper is about the economic theory of biodiversity preservation. A cost-effectiveness methodology is constructed, which results in a ranking criterion sufficiently operational to be useful in suggesting what to look at when determining actual conservation priorities. The formula is firmly rooted in a mathematically rigorous optimization framework, so that its theoretical underpinnings are clear. The underlying model, called the 'Noah's Ark Problem, ' is intended to be a kind of canonical form that hones down to its analytical essence the problem of best preserving diversity under a limited budget constraint.

The least-absolute-deviations (LAD) estimator for a median-regression model does not satisfy the standard conditions for obtaining asymptotic refinements through use of the bootstrap because the LAD objective function is not smooth. This paper overcomes this problem by smoothing the objective function. The smoothed estimator is asymptotically equivalent to the standard LAD estimator. With bootstrap critical values, the rejection probabilities of symmetrical t and X 2 tests based on the smoothed estimator are correct through O(n -γ ) under the null hypothesis, where γ<1 but can be arbitrarily close to 1. In contrast, first-order asymptotic approximations make errors of size O(n -γ ). These results also hold for symmetrical t and X 2 tests for censored median regression models.

A considerable volume of research shows that asset prices respond to changes in the Federal Reserve's discount rate. While several competing hypotheses have been advanced to explain the market's response to discount rate announcements, comparatively little effort has been made to differentiate among alternative hypotheses. The result is an abundance of evidence establishing that asset prices respond to discount rate announcements, but little if any agreement about why markets respond. This article attempts to fill a void in the literature by pointing out how competing hypotheses differ and by constructing tests explicitly designed to differentiate among competing explanations. The evidence suggests that the market's reaction to discount rate changes is purely an announcement effect, i.e., a reaction to new information contained in the announcement, that the direct effect of discount rate changes on market rates is nil, that the announcement effect is invariant to the Federal Reserve's operating procedure and that, generally speaking, changes in the discount rate do not signal a change in monetary policy. The announcement effect appears to vary with both the nature and extent of the information that the announcement of a discount rate change is believed to contain.

Abstract This study examines the relation between audit quality and earnings management. Consistent with prior research, we treat audit quality as a dichotomous variable and assume that Big Six auditors are of higher quality than non‐Big Six auditors. Earnings management is captured by discretionary accruals that are estimated using a cross‐sectional version of the Jones 1991 model. Prior literature suggests that auditors are more likely to object to management's accounting choices that increase earnings (as opposed to decrease earnings) and that auditors are more likely to be sued when they are associated with financial statements that overstate earnings (as compared to understate earnings). Therefore, we hypothesize that clients of non‐Big Six auditors report discretionary accruals that increase income relatively more than the discretionary accruals reported by clients of Big Six auditors. This hypothesis is supported by evidence from a sample of 10,379 Big Six and 2,179 non‐Big Six firm years. Specifically, clients of non‐Big Six auditors report discretionary accruals that are, on average, 1.5‐2.1 percent of total assets higher than the discretionary accruals reported by clients of Big Six auditors. Also, consistent with earnings management, we find that the mean and median of the absolute value of discretionary accruals are greater for firms with non‐Big Six auditors. This result also indicates that lower audit quality is associated with more “accounting flexibility”.