Detailed notes on weekly meetings of the sugar-refining cartel show how communication helps firms collude, and so highlight the deficiencies in the current formal theory of collusion. The Sugar Institute did not fix prices or output. Prices were increased by homogenizing business practices to make price cutting more transparent. Meetings were used to interpret and adapt the agreement, coordinate on jointly profitable actions, ensure unilateral actions were not misconstrued as cheating, and determine whether cheating had occurred. In contrast to established theories, cheating did occur, but sparked only limited retaliation, partly due to the contractual relations with selling agents.

Understanding, Speaking, Reading, Writing, and Earnings in the Immigrant Labor Market by Anthony P. Carnevale, Richard A. Fry and B. Lindsay Lowell. Published in volume 91, issue 2, pages 159-163 of American Economic Review, May 2001

Empirical Strategies in Contract Economics: Information and the Boundary of the Firm by George Baker and Thomas N. Hubbard. Published in volume 91, issue 2, pages 189-194 of American Economic Review, May 2001

This paper explores how to incorporate banks' capital structure and risk-taking into models of production. In doing so, the paper bridges the gulf between (1) the banking literature that studies moral hazard effects of bank regulation without considering the underlying microeconomics of production and (2) the literature that uses dual profit and cost functions to study the microeconomics of bank production without explicitly considering how banks' production decisions influence their riskiness. Various production models that differ in how they account for capital structure and in the objectives they impute to bank managers – cost minimization versus value maximization – are estimated using U.S. data on highest-level bank holding companies. Modeling the bank's objective as value maximization conveniently incorporates both market-priced risk and expected cash flow into managers' ranking and choice of production plans. Estimated scale economies are found to depend critically on how banks' capital structure and risk-taking are modeled. In particular, when equity capital, in addition to debt, is included in the production model and cost is computed from the value-maximizing expansion path rather than the cost-minimizing path, banks are found to have large scale economies that increase with size. Moreover, better diversification is associated with larger scale economies while increased risk-taking and inefficient risk-taking are associated with smaller scale economies.

Exchange-Rate Hedging: Financial versus Operational Strategies by George Allayannis, Jane Ihrig and James P. Weston. Published in volume 91, issue 2, pages 391-395 of American Economic Review, May 2001

Existing studies of mutual fund market timing analyze monthly returns and find little evidence of timing ability. We show that daily tests are more powerful and that mutual funds exhibit significant timing ability more often in daily tests than in monthly tests. We construct a set of synthetic fund returns in order to control for spurious results. The daily timing coefficients of the majority of funds are significantly different from their synthetic counterparts. These results suggest that mutual funds may possess more timing ability than previously documented.

This project tests for the effect of social status in a laboratory experimental market. We consider a special “box design” market in which a vertical overlap in supply and demand ensure that there are multiple equilibrium prices. We manipulate the relative social status of our subjects by awarding high status to a subset of the group based on one of two procedures. In the first, a subject's score on a trivia quiz determines his or her status; in another, subjects are assigned randomly to a higher-status or lower-status group. In both treatments we find that average prices are higher in markets where higher-status sellers face lowerstatus buyers, and lower when buyers have higher status than sellers. Across all sessions, the higher-status side of the market captures a greater share of the surplus, earning significantly more than their lower-status counterparts.

In their seminal paper, Aumann, Kurz, and Neyman found the surprising result that the choice of levels of public goods in a democracy is not affected by the distribution of voting rights. This implies that groups of individuals may not value the franchise. This conclusion, however, does not correspond to what we commonly observe. We propose a new model to address the question of enfranchisement. The main feature of our model is that it takes into account natural affinities, such as religion or class, that may exist between voters. This allows us to show that while individuals may not value the vote, they nonetheless value the franchise. We also show that in the presence of nonconvexities, it is more likely that the group in power will grant the franchise when preferences are severely opposed.

Building on the Dechow et al. (1998) model of the accrual process, this study investigates the role of accruals in predicting future cash flows. The model shows that each accrual component reflects different information relating to future cash flows; aggregate earnings masks this information. As predicted, disaggregating accruals into major components—change in accounts receivable, change in accounts payable, change in inventory, depreciation, amortization, and other accruals—significantly enhances predictive ability. Each accrual component, including depreciation and amortization, is significant with the predicted sign in predicting future cash flows, incremental to current cash flow. The cash flow and accrual components of current earnings have substantially more predictive ability for future cash flows than several lags of aggregate earnings. The inferences are robust to alternative specifications, including controlling for operating cash cycle and industry membership.

The Declining Price Anomaly in Dutch Dutch Rose Auctions by Gerard J. van den Berg, Jan C. van Ours and Menno P. Pradhan. Published in volume 91, issue 4, pages 1055-1062 of American Economic Review, September 2001