This paper presents an economic analysis of religious behavior that accounts for the continuing success of groups with strange requirements and seemingly inefficient prohibitions. The analysis does not presuppose any special motives for religious activity. Rather, religion is modeled as a club good that displays positive returns to "participatory crowding." The analysis demonstrates that efficient religions with perfectly rational members may benefit from stigma, self-sacrifice, and bizarre behavioral restrictions. The model also addresses sacrifice in nonreligious "social clubs": fraternities, communes, political parties, work groups, and families.

Access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements. The fact that privileged information is noisy interferes with the public's attempts to learn whether such announcements are honest; it allows opportunistic individuals to manipulate prices repeatedly, without ever being fully found out. This leads us to extend Sobel's [1985] model of strategic communication to the case of noisy private signals. Our results show that when truthfulness is not easily verifiable, restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices.

A highly controversial issue in financial economies is whether stocks overreact. In this paper we find an economically-important overreaction effect even after adjusting for size and beta. In portfolios formed on the basis of prior five-year returns, extreme prior losers outperform extreme prior winners by 5–10% per year during the subsequent five years. Although we find a pronounced January seasonal, our evidence suggests that the overreaction effect is distinct from tax-loss selling effects. Interestingly, the overreaction effect is substantially stronger for smaller firms than for larger firms. Returns consistent with the overeaction hypothesis are also observed for short windows around quarterly earnings announcements.

Assesses how different regimes of auditor liability affect the demand for and supply of auditing services. Adoption of complex strategies by economic agents; Usefulness of the experimental approach in aiding the understanding of the functioning of auditing markets; Strict liability regime as an alternative by auditors.

Reviews the book `The Accounting Profession in America,' by Frederic M. Stiner Jr. M. Susan Stiner and Ichiro Shiina.

Reviews the book "The Going Concern Assumption: Accounting and Auditing Implications," by J.E. Boritz.

[In this study we assess how different regimes of auditor liability affect the demand for and supply of auditing services. The assessment was made with 15 experimental markets, each of which involved two sellers of assets, two auditors (verifiers), and four buyers. The experimental markets paradigm allowed us to compare the negligence liability regime (six markets) that auditors currently face with two alternatives not currently in existence-a strict liability regime (six markets) and a no-liability regime (three markets). We focused on the extent to which the experimental results conformed to our predictions of (1) sellers' frequency of hiring verifiers and of selecting a costly investment that improved aggregate welfare, (2) verifiers' service fees and their frequency of testing the truthfulness of the sellers' disclosures, and (3) buyers' reliance on the sellers' disclosures and verifiers' reports when pricing the sellers' assets. The predictions varied across the liability regimes primarily because differences in the degree of the verifiers' liability changed their economic incentives to test the truthfulness of the sellers' disclosures. The results show that the no-liability and negligence markets operated in a manner consistent with the predictions, whereas the strict markets deviated from the predictions on several dimensions. Specifically, verifiers in the strict liability markets were hired less often than predicted because they submitted higher offers for their services than sellers were willing to pay. This in turn led to fewer than predicted costly investments by the sellers. Although our general conclusion recognizes that a legal system is an integral part of the auditing institutional infrastructure, we found no evidence of any systematic benefits from imposing a strict liability rule on the verification service. In fact, the results suggest that the negligence liability markets operated at a level of economic efficiency as high or higher than those in the other two regimes. This suggests that the current tendencies of courts and the auditing profession to expand the scope of auditors' liabilities may not achieve the net benefits expected from such expansions.]

This paper shows a widening in black-white earnings and employment gaps among young men from the mid-1970s through the 1980s. Earnings gaps increased most among college graduates and in the Midwest, while gaps in employment-population rates grew most among dropouts. We attribute the differential widening to shifts in demand for subgroups due to shifting industry and regional employment, the falling real minimum wage and deunionization, the growing supply of black to white workers that was marked among college graduates, and to increased crime among dropouts. The different factors affecting subgroups highlight the economic diversity of black Americans.

We consider a principal-agent contracting problem under incomplete information where some of the agent's actions are imperfectly observable. Contracts take the form of reward schedules based on the noisy observation of the agent's action. We first review situations where the principal can reach the same utility as in the absence of noise. Then we focus on the use of linear reward schedules, which allow universal implementation, i.e. implementation of a given mechanism for any unbiased noise of observation, and on quadratic reward schedules, which only require the knowledge of the variance of the noise. We exhibit sufficient conditions under which linear reward schedules implement a given mechanism. Finally, we characterize necessary conditions for a mechanism to be implementable under noisy observation by a linear schedule, and by quadratic schedules. We give the geometric intuition behind all results.