The Impact of Labor Strikes on Consumer Demand: An Application to Professional Sports by Martin B. Schmidt and David J. Berri. Published in volume 94, issue 1, pages 344-357 of American Economic Review, March 2004

Using a common agency model, we investigate the interactions of a utility-maximizing auditor (the agent) with managers (who hire the agent for nonaudit services) and shareholders (who hire the agent for conducting an audit) of the same firm. In a single-period model, managerial discretion over consulting and other nonaudit service fees can influence auditors to issue unqualified opinions on reports that are more favorable than warranted. Shareholders, represented by an audit committee, cannot recover truth-telling. Removing the current restriction on contingent audit fees allows audit committees to offset the incentives provided by management and instead provide the auditor incentives to accept only truthful reports. Extending the model to a multiperiod framework, the audit committee can motivate truth-telling by making retention decisions that are contingent on outcome. Auditors will consider the impact of overreporting on their ability to generate future audit fees from the same client.

Despite the centrality of the median voter prediction in political economy models, overwhelming empirical evidence shows that legislators regularly take positions that diverge significantly from the preferences of the median voter in their districts. However, all these empirical studies to date lack the necessary data to directly measure the preferences of the median voter. We utilize a unique data set consisting of individual‐level voting data that allows us to construct direct measures of voter preferences. We find that legislators are most constrained by the preferences of the median voter in homogeneous districts.

Toward National Well-Being Accounts by Daniel Kahneman, Alan B. Krueger, David Schkade, Norbert Schwarz and Arthur Stone. Published in volume 94, issue 2, pages 429-434 of American Economic Review, May 2004

Managed care organizations rely on incentives that encourage physicians to limit medical expenditures, but little is known about how physicians respond to these incentives. We address this issue by analyzing the physician incentive contracts in use at a health maintenance organization. By combining knowledge of the incentive contracts with internal company records, we examine how medical expenditures vary with the intensity of the incentive to cut costs. Our investigation leads us to a novel explanation for high‐powered group incentives: such incentives can improve efficiency in the allocation of resources when the allocation process is based on the professional judgment of multiple agents. Our empirical work indicates that medical expenditures at the HMO are 5 percent lower than they would have been in the absence of incentives.

ABSTRACT We examine the impact of political, institutional, and economic factors on the choice between selling a state‐owned enterprise in the public capital market through a share issue privatization (SIP) and selling it in the private capital market in an asset sale. SIPs are more likely in less developed capital markets, for more profitable state‐owned enterprises, and where there are more protections of minority shareholders. Asset sales are more likely when there is less state control of the economy and when the firm is smaller. Our results suggest the importance of privatization activities in developing the equity markets of privatizing countries.