This paper tests the rationality of retirement expectations, controlling for sample selection and reporting biases. We find that retirement expectations in the Health and Retirement Study are consistent with the rational expectations hypothesis. We also analyze how new information affects the evolution of retirement expectations and discover that, on average, individuals correctly anticipate most uncertain events when planning their retirement, except for some health shocks, the need for additional private health coverage, and the probability of a job change. Our results support a wide variety of models in economics that assume rational behavior.

Britten-Jones and Neuberger (2000) derived a model-free implied volatility under the diffusion assumption. In this article, we extend their model-free implied volatility to asset price processes with jumps and develop a simple method for implementing it using observed option prices. In addition, we perform a direct test of the informational efficiency of the option market using the model-free implied volatility. Our results from the Standard & Poor’s 500 index (SPX) options suggest that the model-free implied volatility subsumes all information contained in the Black–Scholes (B–S) implied volatility and past realized volatility and is a more efficient forecast for future realized volatility.

“Does increasing women's schooling raise the schooling of the next generation?” is the question posed by Jere R. Behrman and Mark R. Rosenzweig (2002). Their answer to the question is no. In fact, they conclude that raising women's schooling may lower the schooling of the next generation. We show that Behrman and Rosenzweig's results are not robust to alternative coding schemes and sample selection rules, and argue that their policy inference may be misguided.

When it is hard to assess service quality, firms will suboptimally hire low ability workers. We show that organizing as a profit-sharing partnership can alleviate these problems. Our theory explains the relative scarcity of partnerships outside of professional service industries such as law, accounting, medicine, investment banking, architecture, advertising, and consulting. It also sheds light on features of partnerships such as up-or-out promotion systems, the use of noncompete clauses, and recent trends in professional service industries.

Abstract This paper examines optimal capital structure choice using a dynamic capital structure model that is calibrated to reflect actual firm characteristics. The model uses contingent claim methods to value interest tax shields, allows for reorganization in bankruptcy, and maintains a long-run target debt to total capital ratio by refinancing maturing debt. Using this model, we calculate optimal capital structures in a realistic representation of the traditional trade-off model. In contrast to previous research, the calculated optimal capital structures do not imply that firms tend to use too little leverage in practice. We also estimate the costs borne by a firm whose capital structure deviates from its optimal target debt to total capital ratio. The costs of moderate deviations are relatively small, suggesting that a policy of adjusting leverage infrequently is likely to be reasonable for many firms.

To test recent theories suggesting that valuation errors affect merger activity, we develop a decomposition that breaks the market-to-book ratio (M/B) into three components: the firm-specific pricing deviation from short-run industry pricing; sector-wide, short-run deviations from firms’ long-run pricing; and long-run pricing to book. We find strong support for recent theories by Rhodes-Kropf and Viswanathan [2004. Market valuation and merger waves. Journal of Finance, forthcoming] and Shleifer and Vishny [2003. Stock market driven acquisitions. Journal of Financial Economics 70, 295–311], which predict that misvaluation drives mergers. So much of the behavior of M/B is driven by firm-specific deviations from short-run industry pricing, that long-run components of M/B run counter to the conventional wisdom: Low long-run value to book firms buy high long-run value-to-book firms. Misvaluation affects who buys whom, as well as method of payment, and combines with neoclassical explanations to explain aggregate merger activity.

We consider how fund managers respond to the conflicting preferences of their investors. We focus on the conflict between the taxable and retirement accounts of international funds, which face different tradeoffs between dividends and capital gains. In principle, managers could resolve this conflict through dividend arbitrage, but a proprietary database of dividend-arbitrage transactions shows that in practice they cannot. Thus, managers must resolve it through their investment policies. We find robust evidence that managers with more retirement money favor the preferences of retirement investors and further evidence for this view in the difference between U.S. and Canadian funds’ portfolio weights.

Heavy Alcohol Use and the Commission of Nuisance Crime: Evidence from Underage Drunk Driving Laws by Christopher S. Carpenter. Published in volume 95, issue 2, pages 267-272 of American Economic Review, May 2005

Questions remain as to whether results from experimental economics are generalizable to real decisions in nonlaboratory settings. Furthermore, questions persist about whether social capital helps mitigate information asymmetries in credit markets. I examine whether behavior in two laboratory games, Trust and a Public Goods, predicts loan repayments to a Peruvian group-lending microfinance program. Since this program relies on social capital to enforce repayment, this tests the external validity of the games. Individuals identified as “trustworthy” by the Trust Game are indeed less likely to default on their loans. No similar support is found for the game's identification of “trusting” individuals.