When a U.S. multinational corporation shifts income from the U.S. to foreign jurisdictions, it incurs costs and reaps benefits. The benefits may be reduced if the shifted income must be returned to the U.S. as a dividend in the short term and face the same U.S. tax it would have if the income had not been shifted. Firms, then, have incentive to defer repatriation of earnings and to fund domestic cash needs with external financing. The cost of external financing, however, is increasing in financial constraints, leading to the prediction that constrained firms will be unable to defer repatriation and, therefore, will reap no benefits from shifting. Using a new methodology for measuring income shifting, we find, consistent with predictions, that financially constrained firms shift less income from the U.S. to foreign countries than their unconstrained peers. We estimate that financially constrained firms shift out 20 percent less of pre-shifted income than unconstrained firms. Translating this percentage to dollar values, the mean (median) constrained firm shifts $16 million ($7 million) out of the U.S. each year, while the mean (median) unconstrained firm shifts $321 million ($134 million) out of the U.S. each year. Assuming that the inability to defer repatriation is the primary constraint preventing the U.S. worldwide tax system from being a de facto territorial system, we use our findings to estimate that changing to a pure territorial tax system would increase outbound income shifting by U.S. multinationals by 8 percent.

Allowing CEOs to hedge the risk in the compensation contracts their firms give them has been controversial because such hedging allows the executives to undo some of the incentive effects of those contracts; it also results in a divergence between the compensation firms pay their senior executives and the compensation those executives effectively receive. We analyze these personal hedging activities of CEOs and identify when firms may gain or lose by allowing or prohibiting such hedging. We also describe variations in CEOs' demands for various compensation hedges, and how firms will restructure their CEOs' compensation contracts in anticipation that the CEOs will engage in such hedging.

We investigate in a sample of 53 emerging markets over 1980-2014 whether countries with open capital accounts are necessarily at the mercy of global events, or are able to take policy actions when receiving inflows to mitigate the impact of a subsequent reversal. Our analysis suggests that, while changes in global conditions have an important bearing on crisis susceptibility, countries that allow the buildup of macroeconomic and financial vulnerabilities during boom times, and which receive mostly debt flows, are significantly more likely to see capital inflow surge episodes end in a financial crisis.

We assess the role of both accruals manipulation (AM) and real activities manipulation (RAM) in inducing overvaluation at the time of a seasoned equity offering (SEO). Our results reveal that earnings management is most consistently and predictably linked with post-SEO stock market underperformance when it is driven by RAM; in particular, the opportunistic reduction of expenditures on R&D and selling, general, and administrative activities. Thus, overvaluation at the time of the SEO is more likely when managers actively engage in more opaque channels to overstate earnings. Our findings are particularly relevant because managers exhibit a greater propensity for RAM at the time of SEOs, even though RAM is more costly in the long run.

Indirect incentives exist in the money management industry when good current performance increases future inflows of capital, leading to higher future fees. For the average hedge fund, indirect incentives are at least 1.4 times as large as direct incentives from incentive fees and managers’ personal stakes in the fund. Combining direct and indirect incentives, manager wealth increases by at least $0.39 for a $1 increase in investor wealth. Younger and more scalable hedge funds have stronger flow‐performance relations, leading to stronger indirect incentives. These results have a number of implications for our understanding of incentives in the asset management industry.

The household production approach to consumer behavior, developed from the work of Gary Becker, William Gorman, and Kelvin Lancaster, has considerable descriptive appeal in modelling the decisions of households. The approach derives from the observation that households frequently purchase market goods that do not yield utility directly, but are combined to produce commodity service flows which the household values. Thus observed behavior is determined by household production technology as well as by tastes. The advantage of this distinction is that we can pose reasonable hypotheses about characteristics of technology, though we rarely possess useful a priori information regarding tastes. The putative advantages of the household production approach are questioned on empirical and conceptual grounds by Robert Pollak and Michael Wachter (1975). They show that jointness in production or nonconstant returns to scale cause implicit commodity prices to depend on both tastes and technology, raising serious econometric difficulties in the estimation of commodity demand functions. In addition, since commodity prices become functions of the commodity bundle consumed, the analogy to traditional demand theory breaks down. Joint production occurs when a good enters several production processes simultaneously, or, equivalently, when a good in one production process also enters directly into the individual's utility function. The most common example is time, which provides the context for all production processes and is often associated with the production of several commodities simultaneously. Since joint production in the household is likely to be pervasive, the critique by Pollak and Wachter cannot be ignored. In response to the comment by William Barnett, Pollak and Wachter (1977) suggest dispensing with the notion of commodity prices and treating the demand for commodities as a function of goods prices. This approach confounds tastes and technology, but it eliminates the troublesome concept of commodity prices as parameters when, in fact, they are likely to be endogenous. In this paper we show that results from positive analysis, such as the critique by Pollak and Wachter, have implications for the use of the household production framework for welfare analysis. The household production function approach has had considerable appeal for measuring welfare effects of public actions in the environmental and natural resource areas (Gardner Brown, John Charbonneau, and Michael Hay; Elizabeth Wilman). Yet traditional approaches to welfare measurement are frequently inapplicable. We argue that welfare measurement in this framework is complicated by the difficulties of unravelling tastes and technology. We extend Pollak and Wachter's results by demonstrating that Marshallian demand functions for commodities cannot be uniquely defined. Thus Marshallian functions cannot be used to derive exact compensated functions in the manner of Jerry Hausman, and of George McKenzie and I. F. Pearce, nor can compensating and equivalent variation measures be bounded by Marshallian consumer's surplus estimates following Robert Willig. In fact, duality results that normally allow us to move between Marshallian and Hicksian functions are not *Assistant and Associate Professors, respectively, Department of Agricultural and Resource Economics, University of Maryland, College Park, MD 20742. This paper is Scientific Article No. A3404, Contribution No. 6476, of the Maryland Agricultural Experiment Station. We wish to thank Darrell Hueth, James Opaluch, V. Kerry Smith, and Elizabeth Wilman for comments on an earlier draft.

We develop a pair of risk measures, health and mortality delta, for the universe of life and health insurance products. A life‐cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products. We estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance, annuities including private pensions, and long‐term care insurance in the Health and Retirement Study. For the median household aged 51 to 57, the lifetime welfare cost of market incompleteness and suboptimal choice is 3.2% of total wealth.

A key problem with solar energy is intermittency: solar generators produce only when the sun is shining, adding to social costs and requiring electricity system operators to reoptimize key decisions. We develop a method to quantify the economic value of large-scale renewable energy. We estimate the model for southeastern Arizona. Not accounting for offset carbon dioxide, we find social costs of $138.40 per megawatt hour for 20 percent solar generation, of which unforecastable intermittency accounts for $6.10 and intermittency overall for $46.00. With solar installation costs of $1.52 per watt and carbon dioxide social costs of $39.00 per ton, 20 percent solar would be welfare neutral.

We study the effect of financial resources on decision-making. Low-income U.S. households are randomly assigned to receive an online survey before or after payday. The survey collects measures of cognitive function and administers risk and intertemporal choice tasks. The study design generates variation in cash, checking and savings balances, and expenditures. Before-payday participants behave as if they are more present-biased when making intertemporal choices about monetary rewards but not when making intertemporal choices about non-monetary real-effort tasks. Nor do we find before-after differences in risk-taking, the quality of decision-making, the performance in cognitive function tasks, or in heuristic judgments.