The sovereign-debt literature has often implicitly assumed that all the power in the bargaining game between debtor and creditor lies with the latter. This paper explores that assumption by analyzing three game-theoretic models of debt renegotiations. In two of the models, both of which are built on the traditional one-sector growth model, all the subgame-perfect equilibria have an extreme form in which the game's surplus is captured by the creditor. The third game has many subgame-perfect equilibria that do not have this feature, however. The roles of various assumptions in all three games are examined.

A presidential vote function and a presidential approval ratings function are jointly estimated for U.S. post-war observations. The estimation technique treats the two equations as seemingly unrelated regressions with unequal numbers of observations. Cross-equation restrictions implying that voters and poll respondents use identical standards in judging the economic performance of incumbents are imposed and tested. Estimates show that both votes and approval ratings are influenced by GNP growth and inflation. The results suggest that poll respondents are more inflation averse than voters; however, tests of this hypothesis are not conclusive.

The nature and characteristics of economic fluctuations in Eastern European Centrally Planned Economies are analyzed. When cycles are identified by the deviation from a fitted deterministic trend, they are seen to coincide temporally. This common variation is found for Net Material Product (NMP) and Investment. The implications of the common variation of CPE cycles are discussed. Possible explanations of this phenomenon are discussed with emphasis on a possible link via trade. We then examine the possibility that the time series contain unit roots. We are unable to reject this hypothesis for the variables in question. This suggests using procedures for detrending nonstationary time series suggested by Beveridge and Nelson. Such an analysis is performed and the implications are discussed. We find that there remains some common variation in the cyclical component of output, but to a lesser extent. The implications of these findings for future research on CPE cycles are discussed.

[Tests of financial asset pricing models may yield misleading inferences when properties of the data are used to construct the test statistics. In particular, such tests are often based on returns to portfolios of common stock, where portfolios are constructed by sorting on some empirically motivated characteristic of the securities such as market value of equity. Analytical calculations, Monte Carlo simulations, and two empirical examples show that the effects of this type of data snooping can be substantial.]

[If returns on some stocks systematically lead or lag those of others, a portfolio strategy that sells "winners" and buys "losers" can produce positive expected returns, even if no stock's returns are negatively autocorrelated as virtually all models of overreaction imply. Using a particular contrarian strategy we show that, despite negative autocorrelation in individual stock returns, weekly portfolio returns are strongly positively autocorrelated and are the result of important cross-autocorrelations. We find that the returns of large stocks lead those of smaller stocks, and we present evidence against overreaction as the only source of contrarian profits.]

[The short-run interdependence of prices and price volatility across three major international stock markets is studied. Daily opening and closing prices of major stock indexes for the Tokyo, London, and New York stock markets are examined. The analysis utilizes the autoregressive conditionally heteroskedastic (ARCH) family of statistical models to explore these pricing relationships. Evidence of price volatility spillovers from New York to Tokyo, London to Tokyo, and New York to London is observed, but no price volatility spillover effects in other directions are found for the pre-October 1987 period.]

[Auditors and regulators claim that low balling (when an auditor prices the initial audit below his or her costs) occurs in the audit market and impairs audit quality. This paper uses the experimental economics methodology to examine the economic rationale for such a practice and to test the hypothesis of low balling under different conditions of transaction costs. Assuming competitive markets, cost advantages are predicted to accrue to the incumbent auditor when transaction costs are positive. In this setting, auditors would low ball in the initial engagement, and would earn client-specific quasi-rents in subsequent engagements. Competition in the market ensures that the auditor earns from any particular client "zero" cumulative profits over time. That is, the loss incurred in the initial engagement exactly offsets the total profits earned in subsequent periods. The method of testing the low-balling hypothesis consists of six controlled laboratory market experiments. In these markets, numerous buyers and sellers form single-period contracts using a sealed-offer institution extending over a two-period trading year. Each market consists of 17 independently repeated two-period years. Two markets possess zero transaction costs, while the other four markets contain varying levels of positive transaction costs. The results are consistent with low-balling behavior and predictions. Low balling is not observed in markets with no transaction costs; i.e., sellers do not price below their costs. In this case, seller profits per year are zero and incumbent sellers are not retained by buyers in Period 2 of a trading year. In the positive transaction cost markets, low balling occurs (sellers set Period 1 prices below their costs) and incumbent sellers in Period 2 charge prices that earn them positive profits for the period. Period 2 (Period 1) prices are at (approaching) predicted levels. Seller profits for a two-period year are generally zero, implying that Period 1 losses are offset by Period 2 profits. Additionally, the incumbent seller is retained by buyers in the second period of a given trading year. Overall, the results of this study support low-balling behavior and suggest that positive transaction costs might be the cause. This study also establishes a framework that can be expanded to investigate other phenomena such as auditor quality.]

Abstract Examines the economic rationale of the low-balling practice in audit pricing. Analysis of the practice using experimental economic methodology; Testing of low-balling under different conditions of transaction costs.