Why do firms choose high debt when they anticipate high valuations, and underperform subsequently? We propose a theory of financing cycles where the importance of creditors’ control rights over cash flows (“pledgeability”) varies with industry liquidity. The market allows firms take on more debt when they anticipate higher future liquidity. However, both high anticipated liquidity and the resulting high debt limit their incentives to enhance pledgeability. This has prolonged adverse effects in a downturn. Because these effects are hard to contract upon, higher anticipated liquidity can also reduce a firm's current access to finance.

We analyze the likelihood of government bailouts of 450 politically connected firms from 35 countries during 1997–2002. Politically connected firms are significantly more likely to be bailed out than similar nonconnected firms. Additionally, politically connected firms are disproportionately more likely to be bailed out when the International Monetary Fund or the World Bank provides financial assistance to the firm's home government. Further, among bailed‐out firms, those that are politically connected exhibit significantly worse financial performance than their nonconnected peers at the time of and following the bailout. This evidence suggests that, at least in some countries, political connections influence the allocation of capital through the mechanism of financial assistance when connected companies confront economic distress.

A core question in the contemporary debate on distributive justice is how to understand fairness in situations involving production. Important theories of distributive justice, such as strict egalitarianism, liberal egalitarianism, and libertarianism, provide different answers to this question. This paper presents the results from a dictator game where the distribution phase is preceded by a production phase. Each player's contribution is a result of a freely chosen investment level and an exogenously given rate of return. We estimate simultaneously the prevalence of three principles of distributive justice among the players and the distribution of the weight they attach to fairness.

Risk Aversion and Incentive Effects: Comment by Glenn W. Harrison, Eric Johnson, Melayne M. McInnes and E. Elisabet Rutström. Published in volume 95, issue 3, pages 897-901 of American Economic Review, June 2005

The measurement of intelligence should identify and measure an individual’s subjective confidence that a response to a test question is correct. Existing measures do not do that, nor do they use extrinsic financial incentive for truthful responses. We rectify both issues and show that each matters for the measurement of intelligence, particularly for women. Our results on gender and confidence in the face of risk have wider applications in terms of the measurement of “competitiveness” and financial literacy. Contrary to received literature, women are more intelligent than men, compete when they should in risky settings, and are more literate.

We describe how capital accumulation and the network structure of US production interact to amplify the effects of sectoral trend growth rates in total factor productivity and labor on trend GDP (gross domestic product) growth. We derive expressions that conveniently summarize this long-run amplification effect by way of sectoral multipliers. We estimate that sector-specific factors have historically accounted for approximately three-fourths of long-run changes in GDP growth. Trend GDP growth fell by nearly 3 percentage points over the postwar period, with especially significant contributions from the Construction sector in 1950–80 and the Durable Goods sector in 2000–2018. No sector has contributed any steady significant increase to the trend growth rate of GDP in the past 70 years.

This paper evaluates the impact of three different performance incentive schemes using data from a social experiment that randomized 88 Mexican high schools with over 40,000 students into three treatment groups and a control group. Treatment 1 provides individual incentives for performance on curriculum-based mathematics tests to students only, treatment 2 to teachers only, and treatment 3 gives both individual and group incentives to students, teachers, and school administrators. Program impact estimates reveal the largest average effects for treatment 3, smaller impacts for treatment 1, and no impact for treatment 2.

This study examines the incremental predictive power of aggregate measures of financial misreporting for recession and real gross domestic product (GDP) growth. We draw on prior research suggesting that misreporting has real economic effects because it represents misinformation on which firms base their investment, hiring, and production decisions. We find that aggregate M-Score incrementally predicts recessions at forecast horizons of five to eight quarters ahead. We also find that aggregate M-Score is significantly associated with lower future growth in real GDP, real investment, consumption, and industrial production. Additionally, our result that aggregate M-Score predicts lower real investment one to four quarters ahead partially accounts for why misreporting predicts recessions five to eight quarters ahead. Our findings are weaker when we use aggregate F-Score as a proxy for misreporting. Overall, this study provides novel evidence that aggregate misreporting measures can aid forecasters and regulators in predicting recessions and real GDP growth.