Knowledge that Transforms

Financial reporting, Conservatism, Auditor-client negotiations, Auditing

Voluntary Disclosure, Management forecasts, Earnings forecasts, Revenue forecasts

Public announcement, Preannouncements of information, Private information, Price reaction

Stewardship role, Accounting information systems, Management control, Value of information system

Auditing, Litigation, Legal disputes, Auditor trials

IN THE FIELD OF NONCOOPERATIVE GAME THEORY, Nash equilibrium (Nash (1951)) has played a central role as a solution concept. In bold strokes, one may discern two major interpretations of Nash equilibrium in the context of rational players. The first, which is close to the eductive interpretation of Binmore (1987, 1988) and the complete information interpretation of Kaneko (1987), assumes that the game is played exactly once (if it is a repeated game, the repetition occurs once), and the players have sufficient knowledge and ability to analyze the game in a rational manner. Sometimes it is assumed that all players have consistent hierarchies of beliefs, where the game and their priors are common knowledge. Bayesian interpretation such as proposed by Aumann (1987) advanced this idea to the level that the players have a common prior. From this point of view, however, Nash equilibrium seems far from being satisfactory

When changes in the economic policy regime occur stochastically, asset prices will reflect the possibility of such shifts. In this paper we apply techniques of regulated Brownian motion to obtain closed-form analytic price solutions when policy reaction functions are subject to prospective changes. We focus on the case in which the authorities promise to peg a currency's exchange rate once it reaches a predetermined future level. We also show how an open-ended commitment to exchange-rate targeting may lead to multiple equilibria.

The main result of this paper characterizes voting by committees. There are n voters and K objects. Voters must choose a subset of K. Voting by committees is defined by one monotone family of winning coalitions for each object; an object is chosen if it is supported by one of its winning coalitions. This is proven to be the class of all voting schemes satisfying voter sovereignty and nonmanipulability on the domain of separable preferences. The result is analogous to the characterization of Clarke-Groves schemes in that it exhibits the class of all nonmanipulable schemes on an important domain. Copyright 1991 by The Econometric Society.

Recent work demonstrates that dynastic assumptions guarantee the irrelevance of all redistributional policies, distortionary taxes, and prices-the neutrality of fiscal policy (Ricardian equivalence) is only the "tip of the iceberg." In this paper, we investigate the possibility of reinstating approximate Ricardian equivalence by introducing a small amount of friction in intergenerational links. If Ricardian equivalence depends upon significantly shorter chains of links than do these stronger neutrality results, then friction may dissipate the effects that generate strong neutrality, without significantly affecting the Ricardian result. Although this intuition turns out to be essentially correct, we show that models with small amounts of friction have other untenable implications. We conclude that the theoretical case for Ricardian equivalence remains tenuous.

We examine the effects of male and female labor supply on household demands and present a simple and robust test for the separability of commodity demands from labor supply. Using data on individual households from six years of the UK FES we estimate a demand system for seven goods which includes hours and participation dummies as conditioning variables. Allowance is made for the possible endogeneity of these conditioning labor supply variables. We find that separability is rejected. Furthermore, we present evidence that ignoring the effects of labor supply leads to bias in the parameter estimates.