The aim of this paper is to develop revealed preference tests for Cournot equilibrium. The tests are akin to the widely used revealed preference tests for consumption, but have to take into account the presence of strategic interaction in a game-theoretic setting. The tests take the form of linear programs, the solutions to which also allow us to recover cost information on the firms. To check that these nonparametric tests are sufficiently discriminating to reject real data, we apply them to the market for crude oil.

We extend the model of Fullerton, Karney, and Baylis (2012) to explore cost-effectiveness of unilateral climate policy in the presence of leakage. We ignore the welfare gain from reducing greenhouse gas emissions, and focus on the welfare cost of the emissions tax or permit scheme. Whereas that prior paper solves for changes in emissions quantities and finds that leakage may be negative, we show here that all cases with negative leakage in that model are cases where a unilateral carbon tax results in a welfare loss. With positive leakage, however, a unilateral policy can improve welfare.

We study the joint effects of intercompany investing and reporting of equity method investments on the accuracy and dispersion of analysts' annual earnings-per-share (EPS) forecasts. We compare firm-year observations with and without equity method investments. We posit two non-mutually exclusive explanations for how equity method investments may affect analyst forecast properties. The Opacity Effect posits that the condensed equity method disclosures increase information asymmetry, increasing analysts' forecast errors and forecast dispersion. The Diversification Effect suggests that the diversification of the investor and its investee earnings streams enhances earnings predictability, decreasing analysts' forecast errors and forecast dispersion. Our findings are consistent with both effects operating in the analyst forecasting task. Additional analyses are consistent with the Opacity Effect dominating. This occurrence results, on net, in less accurate and more dispersed forecasts for firm-years with equity method investments.

We argue that reductions in shareholder taxes should lower the cost of equity capital more for financially constrained firms than for other companies. Consistent with this prediction, we find that, following the 1997 (TRA) and the 2003 (JGTRRA) cuts in U.S. individual shareholder taxes, financially constrained firms enjoyed larger reductions in their cost of equity capital than did other firms. The results are consistent with the incidence of the tax reductions falling mostly on firms with both pressing needs for capital and disproportionate ownership by individuals, the only shareholders who benefited from the legislations. The paper provides a partial explanation for the seemingly puzzling finding that, following the unprecedented 2003 reduction in dividend tax rates, non-dividend-paying firms outperformed dividend-paying firms. The results suggest that it was not dividend status that mattered, but financial constraint, a common attribute of non-dividend-paying companies. Data Availability: Data are available from public sources identified in the study.

This study investigates how relative performance information (RPI) affects employee performance and allocation of effort across tasks in a multi-task environment. Based on behavioral theories, we predict that the social comparison process inherent in RPI induces both a motivation effect that results in increased effort as well as an effort distortion effect that results in the distortion of effort allocations across tasks away from the firm-preferred allocations. We also predict that both effects are magnified when the RPI is public compared to private. We argue that although the motivation effect will generally benefit performance, the effort distortion effect may be detrimental to performance. We design an experiment that isolates these two effects. Consistent with our predictions, we find that RPI induces both motivation and effort distortion effects and that both effects are magnified when the RPI is public rather than private. Although the motivation effect increases performance, we demonstrate that the effort distortion effect can decrease performance. By isolating the motivation and effort distortion effects, our study provides insights into the costs and benefits of RPI in a multi-task environment. As such, it informs accountants regarding the design of information systems and when tasks should be aggregated or disaggregated across employees. Data Availability: Data are available from the authors upon request.

Most interpretations of prevalent counterinsurgency theory imply that increasing government services reduces rebel violence. Empirically, however, development programs and economic activity sometimes increase violence. Using new panel data on development spending in Iraq, we show that violence-reducing effects of development assistance are greater when: (i) projects are small; (ii) troop strength is high; and (iii) professional development expertise is available. These findings are consistent with an information-centric (“hearts and minds”) model, which implies that violence-reduction is greatest when projects are secure, valued by community members, and services derived are conditional on government control of the territory.

We analyze the investment behavior of affiliated funds of mutual funds (AFoMFs), which are mutual funds that can only invest in other funds in the family, and are offered by most large families. Though never mentioned in any prospectus, we discover that AFoMFs provide an insurance pool against temporary liquidity shocks to other funds in the family. We show that, though the family benefits because funds can avoid fire sales, the cost of this insurance is borne by the investors in the AFoMFs. The paper thus uncovers some of the hidden complexities of fiduciary responsibility in mutual fund families.