[We study firms signaling with cash disbursements and show that the choice of a deterministic or a stochastic disbursement depends on a property of the firm's production function that is analogous to absolute risk aversion for a utility function. With decreasing (increasing) absolute risk aversion, the high-quality firm prefers to distinguish itself from the low-quality firm with a stochastic (deterministic) outlay. We then study in detail two common forms of corporate cash distributions: dividends, a deterministic disbursement, and share repurchases, a stochastic disbursement.]

We study firms signaling with cash disbursements and show that the choice of a deterministic or a stochastic disbursement depends on a property of the firm’s production function that is analogous to absolute risk aversion for a utility function. With decreasing (increasing) absolute risk aversion, the high-quality firm prefers to distinguish itself from the low-quality firm with a stochastic (deterministic) outlay. We then study in detail two common forms of corporate cash distributions: dividends, a deterministic disbursement, and share repurchases, a stochastic disbursement.

This paper derives some analytic results concerning the possible effects of a tax-based incomes policy (TIP), and compares them to the effects of a wage subsidy or a decreased payroll tax. The policies are compared using a model of firm equilibrium which is somewhat simpler than that of Yehuda Kotowitz and Richard Portes, and R. W. Latham and David Peel. Because the model is one of firm equilibrium, it ignores both interactions among firms and workers, and the bargaining process. As a result, it cannot answer all possible questions about the effectiveness of a TIP. Nevertheless, the model can address an important question that lies at the very heart of the issue of the possible effectiveness of a TIP: in what way would a TIP influence a firm to change its wage and price decisions, assuming nothing else in the economy were to be changed. If, as shown below, certain versions of TIP

Recent results in capital theory concerning the reswitching of techniques of production have shaken the foundations of a neoclassical parable according to which the total quantity of output per man is supposed to be a function of the total quantity of capital per man-the Surrogate Production Function-which can be used to predict all behavior in the sense of the wage and profit rates that would prevail in different long-run equilibria or steady states.' The source of the difficulty, it would appear, lies in the fact that the neoclassical parable attempts, as it were, to kill two birds with one stone, namely 1) to provide a general representation (or surrogate) of realistic technologies involving production with heterogeneous commodities, and 2) to link the determination of the (listribution of income directly to the technology itself and to the relative size of factor endowments. It turns out that, in general, not only are realistic

On 1 October 2002, the State of Alaska increased taxes on malt beverages from $0.35 per gallon to $1.07 per gallon, increased taxes on wine from $0.85 per gallon to $2.50 per gallon, and increased taxes on distilled spirits from $5.60 per gallon to $12.80 per gallon. The net effect is that the tax on a standard serving rose from about 3 cents for beer, 2 cents for wine, and 4 cents for spirits to a uniform tax of 10 cents per standard serving of each type of alcohol beverage. This paper uses primary data on alcoholic beverage prices in Alaska to study a very basic question: What was the impact of the tax hikes on prices? An alcohol tax hike is often viewed as a public health policy tool to discourage excessive alcohol consumption and alcohol-related problems such as drunk driving. The impact of a tax hike on alcoholic beverage prices is a key link in the chain of the causality from the tax to public health. Economic theory and previous empirical studies, mainly of taxes on goods other than alcoholic beverages, do not provide very much guidance on what to expect following a tax hike. It is an empirical question. To answer the question, I conducted telephone surveys, just before and a year after the tax hike, of on-premise and off-premise alcohol retail establishments across Alaska.

The pattern of disagreement between bond raters suggests that banks and insurance firms are inherently more opaque than other types of firms. Moody's and S&P split more often over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from certain assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. These findings bear on both the existence and reform of bank regulation.

The author considers trade between a flexible-wage America and a rigid-wage Europe. In a benchmark case, a move from autarky to free trade doubles European unemployment. American wages rise to the European level. Entry of the unskilled 'South' to world markets raises European unemployment. Europe's commitment to the high wage wholly insulates America from the shock. Immigration to America raises American income, but lowers European income dollar for dollar, while European unemployment rises. Absent South-North migration of the unskilled from 1970-90, Europe could have maintained the same wage with from one-eighth to one-fourth less unemployment.