Eight Reasons Why Real versus Nominal Interest Rates Is the Most Important Concept in Macroeconomics Principles Courses by Peter E. Kennedy. Published in volume 90, issue 2, pages 81-84 of American Economic Review, May 2000

This paper presents a general-equilibrium model where human capital investment increases specialization and exposes skilled workers to region-specific earnings risk. Interjurisdictional mobility of skilled labor mitigates these risks; state-contingent migration of skilled labor also improves efficiency. With perfect capital markets, labor-market integration raises welfare and reduces ex post earnings inequality. If instead human capital investment can only be financed through local taxes, labor-market integration leads to interjurisdictional fiscal competition, shifting the burden of taxation to low-skilled immobile workers. Decentralized public provision of human capital investment creates earnings inequalities and is inefficient.

This paper examines the takeover charter amendments made by 128 firms listed on the New Zealand Stock Exchange. By December 31, 1995, firms were to have adopted one of three charter amendments that varied the timing and content of information required to be provided in takeover bids. The results show that after controlling for the probability of takeover and firm size, unaffiliated directors, representing blockholders, are associated with a less restrictive takeover amendment. We also find evidence that equity owned and controlled by executive and affiliated directors is related to the choice of takeover amendment. We find no relation between the choice of takeover amendment and the level of institutional shareholding, the proportion of public directors or the joint role of CEO and board chairman.

In the field of economics, perhaps the most important break with the past—one that leaves open huge areas for future work—lies in the economics of information. It is now recognized that information is imperfect, obtaining information can be costly, there are important asymmetries of information, and the extent of information asymmetries is affected by actions of firms and individuals. This recognition deeply affects the understanding of wisdom inherited from the past, such as the fundamental welfare theorem and some of the basic characterization of a market economy, and provides explanations of economic and social phenomena that otherwise would be hard to understand.

We examine valuation effects of announcements of seasoned equity issuance and assess the impact of the choice of flotation method in the U.K. Rights offerings are predominant, but in 1986, British firms gained the flexibility to conduct placings, which are comparable to U.S. firm commitment offerings. A placing is a fixed-price bought deal that increases ownership dispersion. Placings generate significantly positive share price effects, whereas rights offerings have large negative valuation effects that become more adverse after 1985. We conclude that the option to conduct placings enhances the ability of firms to signal their quality and to use a seasoned equity offering to reduce ownership concentration.

Microsoft stands accused of an illegal defense of its dominant position in the desktop operatingsystem market. According to the charge, exclusionary contracts and predatory conduct dealing primarily with the Internet browser prevented the browser from evolving into a rival for Microsoft’s operating system, Windows. Earlier, the government negotiated a consent decree with Microsoft limiting exclusionary terms in the company’s contracts with computer makers. Our purpose here is to investigate quantification of the effects of the challenged conduct. By how much will the computer purchaser gain from the elimination of artificial barriers to entry in the operating-system business? Or, to put the question the other way around, how much harm did the conduct cause before it was brought under control? We also discuss policies for controlling artificial barriers. A related more detailed paper, Hall (1999), develops a model to deal with these issues at a more general level. Here we will present a stripped-down version of the model and apply it to Microsoft.

We exhibit an efficient auction (an auction that maximizes surplus conditional on all available information). For private values, the Vickrey auction (for one good) or its Groves-Clarke extension (for multiple goods) is efficient. We show that the Vickrey and Groves-Clarke auctions can be generalized to attain efficiency when there are common values, if each buyer's information can be represented as a one-dimensional signal. When a buyer's information is multidimensional, no auction is generally efficient. Nevertheless, in a broad class of cases, our auction is constrained-efficient in the sense of being efficient subject to incentive constraints.

Christian S. Pedersen, Stephen E. Satchell, Small Sample Analysis of Performance Measures in the Asymmetric Response Model, The Journal of Financial and Quantitative Analysis, Vol. 35, No. 3 (Sep., 2000), pp. 425-450

This paper considers how identity, a person's sense of self, affects economic outcomes. We incorporate the psychology and sociology of identity into an economic model of behavior. In the utility function we propose, identity is associated with different social categories and how people in these categories should behave. We then construct a simple game-theoretic model showing how identity can affect individual interactions. The paper adapts these models to gender discrimination in the workplace, the economics of poverty and social exclusion, and the household division of labor. In each case, the inclusion of identity substantively changes conclusions of previous economic analysis.

Researchers using cross-sectional data have failed to produce systematic evidence that teacher salaries affect student outcomes. These studies generally do not account for non-pecuniary job attributes and alternative wage opportunities, which affect the opportunity cost of choosing to teach. When we employ the methodology used in previous studies, we replicate their results. However, once we adjust for labor market factors, we estimate that raising teacher wages by 10% reduces high school dropout rates by 3% to 4%. Our findings suggest that previous studies have failed to produce robust estimates because they lack adequate controls for non-wage aspects of teaching and market differences in alternative occupational opportunities.