We use a large database on ESO exercises to document characteristics of exercise behavior and calibrate a utility-based model for measuring how differences in exercise behavior are manifested in option values and incentives. Option values and incentives computed from the model calibrations are compared to those computed from models used to value tradable options. Our analysis provides guidance to both academics and practitioners about how differences in exercise behavior and model choice affect measures of ESO values and incentives, and underscores the importance of gaining a thorough understanding of the underlying economic forces that affect the behavior of ESO holders.

Organizing the program for the annual meetings is by far the most important job of the President-elect.The job is like that of a journal editor, in that the actual content of the program comes from submissions by members, but the importance given to various research and policy areas by program committee members and their reviews of submissions are critical.In addition to organizing the usual program of oral sessions and selecting sessions for inclusion in this volume, committee members assisted me in setting up a series of tutorials on research and policy topics that gave the AEA membership overviews of subjects outside their specialties, and poster sessions that gave more economists opportunities to present their research and meet peers working on similar problems.My program committee was broadly representative of the profession; its members were Alan Auerbach (UC Berkeley, public

Party platforms differ sharply from one another, especially on issues with religious content, such as abortion or gay marriage. Given the high return to attracting the median voter, why do vote-maximizing politicians take extreme positions? In this paper we find that strategic extremism depends on an intensive margin where politicians want to induce their core constituents to vote (or make donations) and the ability to target political messages toward those core constituents. Our model predicts that the political relevance of religious issues is highest when around one-half of the voting population attends church regularly. Using data from across the world and within the United States, we indeed find a nonmonotonic relationship between religious extremism and religious attendance.

This paper presents a model of optimal tax-motivated intertemporal income shifting given a quadratic cost function that relates the costs associated with shifting income to the amount of income shifted. By formally modeling the income-shifting decision, we: (1) show how parameter estimates of the income-shifting cost function can be extracted from a linear regression where a proxy for income shifted is the dependent variable, (2) provide insight into prior tax-motivated income-shifting research, and (3) clarify the interpretation of independent variables that capture the interaction between tax incentives and nontax costs. We then provide an empirical application of our method for quantifying the costs to shift federal taxable income by investigating the income-shifting behavior of firms in the property and casualty (P&C) insurance industry following the Tax Reform Act of 1986. Our results suggest that the parameters of the cost function are negatively related to firm size, the cost to shift a significant amount of income is nontrivial, and the marginal cost to shift income increases as more income is shifted.

Since 1950, housing prices have risen regularly by almost two percent per year. Between 1950 and 1970, this increase reflects rising housing quality and construction costs. Since 1970, this increase reflects the increasing difficulty of obtaining regulatory approval for building new homes. In this paper, we present a simple model of regulatory approval that suggests a number of explanations for this change including changing judicial tastes, decreasing ability to bribe regulators, rising incomes and greater tastes for amenities, and improvements in the ability of homeowners to organize and influence local decisions. Our preliminary evidence suggests that there was a significant increase in the ability of local residents to block new projects and a change of cities from urban growth machines to homeowners' cooperatives.

In this paper we test for the presence of rational bubbles in the NASDAQ stock market index over the period 1994:06–2003:11 by means of a methodology based on fractional processes. The results suggest that the existence of bubbles depends on the sampling frequency used in the analysis. We cannot reject the unit root hypothesis when using monthly data on price–dividend ratios, which according to the present value model suggests the existence of rational bubbles. However, we reject this hypothesis in favor of fractional alternatives when using daily and weekly data. This might be explained by the temporal aggregation and/or the sample sizes used in the application.

The SEC issued Staff Accounting Bulletin (SAB) No. 101 to address its concern that firms were masking true performance by managing earnings using accelerated revenue recognition. Critics of this Accounting Bulletin stated that it would eliminate industry-accepted revenue recognition practices and reduce the quality of reported earnings. The FASB's revenue recognition discussions echo these concerns stating that revenues recorded prior to the completion of the earnings process contain value-relevant information about future performance. This paper investigates these two hypotheses using a sample of firms that accelerated revenue recognition prior to SAB No. 101 adoption (SAB 101 firms) and a matched set of firms that were unaffected by this regulation (unaffected firms). Our earnings distribution tests indicate that SAB 101 firms are more likely to meet earnings benchmarks. Specifically, we find that, in the pre-adoption period, SAB 101 firms report fewer small negative and more small positive earnings than they do in the post-adoption period and than do unaffected firms in the pre-adoption period; SAB 101 firms report fewer small negative and more small positive earnings changes in the pre-adoption period compared to the post-adoption period. We also document that SAB 101 firms are more likely to have weaker corporate governance and more likely to have financial covenants, providing them with greater incentives to manage earnings. However, we find that the association between earnings and future cash flows and between unexpected earnings and earnings announcement period returns were higher for SAB 101 firms than for unaffected firms in the preadoption period, indicating higher earnings informativeness for SAB 101 firms. These associations declined for SAB 101 firms in the post-adoption period, suggesting that SAB No. 101 caused a decline in earnings informativeness. Overall, our results suggest that, although the revenue recognition practices targeted by SAB No. 101 have been used by some firms to manage earnings, the regulation's prohibition of revenue recognition prior to completion of the earnings process, on average, results in less informative earnings since these unearned revenues provide value-relevant information.

President in April 1994. This paper argues that the federal form of governance, which allowed for locally elected provincial governments with significant fiscal policy responsibilities, was essential for this successful transition. An appropriately structured federal constitution can allow for democratic rule by the (often poor) majority, while protecting to a significant degree the economic interests of the previous ruling (usually rich) minority. A federal constitution must resolve three