We propose an empirical method that utilizes the conditional density of the state variables to estimate and test a term structure model with known price formulae, using data on both discount and coupon bonds. The method is applied to an extension of a two-factor model due to Cox, Ingersoll, and Ross (1985; CIR). Our results show that estimates based on only bills imply unreasonably large price errors for longer maturities. We reject the original CIR model using a likelihood ratio test, and conclude that the extended CIR model also fails to provide a good description of the Treasury market.

We develop a measure of public information flow to financial markets and use it to document the patterns of information arrival, with an emphasis on the intraday flows. The measure is the number of news releases by Reuter's News Service per unit of time. We find that public information arrival is nonconstant, displaying seasonalities and distinct intraday patterns. Next we relate our measure of public information to aggregate measures of intraday market activity. Our results suggest a positive, moderate relationship between public information and trading volume, but an insignificant relationship with price volatility.

Andrew D. Foster, Mark R. Rosenzweig, A Test for Moral Hazard in the Labor Market: Contractual Arrangements, Effort, and Health, The Review of Economics and Statistics, Vol. 76, No. 2 (May, 1994), pp. 213-227

Price-discrimination practices are common, but they typically are analyzed in a framework in which firms sell directly to end users (Louis Phlips, 1981; Richard Schmalensee, 1981; Hal Varian, 1985; Gerstner and Holthausen, 1986). This direct-channel framework is valid for service industries such as entertainment and travel, where senior citizens buy reduced-price tickets to musical concerts, and children receive discounts on airfares and movietheater tickets. In the packaged-goods and durable-goods industries, however, manufacturers sell to retailers who sell to consumers. In indirect channels like these, price discrimination occurs when manufacturers target discounts1 to price-conscious consumers in the form of coupons and rebates. Consumers who do not use these discounts pay higher net prices. Because manufacturers cannot dictate consumer prices to retailers, analysis of price discrimination ought to take into account the pricing behavior of retailers (Michael Katz, 1987; Gerstner and Hess, 1991). While some researchers have studied coupons as a means for price discrimination (William Levedahl, 1984; Chakravarthi Narasimhan, 1984), they have done so in a direct-channel context and have ignored the role of retailers or other middlemen in the pricing and couponing process. In this paper we study price discrimination within a channel of distribution consisting of a single manufacturer and competitive retailers. In the model, the manufacturer pricediscriminates using a pull discount targeted at consumers with low reservation prices to reduce the net price these consumers pay for the product. Some consumers with higher reservation prices, who self-select not to use the discount, pay the full retail price for the product. The manufacturer chooses the wholesale price for the firm's product and the size of the price-discriminating pull discount, taking as given the markup percentage used by retailers. Joint determination of the manufacturer discount and retail markup is also considered. The paper's major finding is that a higher retail markup percentage influences the manufacturer to use price discrimination in a less intensive way (i.e., to reduce the size of the equilibrium pull discount as well as the wholesale price). The intuition behind this result is as follows. The greater the retail markup percentage, for a given wholesale price, the greater will be the retail price. The greater the retail price, the larger the pull discount will have to be to keep the low-reservation-price consumers in the market. But the manufacturer bears the entire cost of the discount, and a larger discount induces more nontargeted customers to use it. These two effects make price discrimination less profitable when markup percentage increases, so the manufacturer reduces its pull discount and in*Gerstner: Graduate School of Management, University of California, Davis, CA 95616, and Department of Economics, Haifa University, Haifa 31999, Israel; Hess: Department of Business Administration, University of Illinois, Champaign, IL 61820; Holthausen: Department of Economics, North Carolina State University, Box 7507, Raleigh, NC 27695. We thank Alastair Hall, Jeongwen Chiang, Randy Cooke, and Nick Ruotolo for their comments and assistance. 1Manufacturers who distribute products through retailers use push or techniques to increase sales. Under push, manufacturers offer inducements to retailers. When consumers shop for the product, the retailer has an incentive to promote the brand, thus pushing it through to consumers. Under pull, manufacturers offer incentives such as coupons or rebates directly to consumers. The manufacturers hope that demand will be pulled through the channel by consumers asking retailers for the promoted brand.

Examines the effect Laventhol & Horwath's (L&H) disclosure of their auditor's bankruptcy and the appointment of a successor auditor on the company's stock prices. Insurance hypothesis; Investors' assignment of a value to the right to recover investment losses from the auditor; Adverse effect of bankruptcy disclosure on market prices of L&H clients.

We establish conditions which (in various settings) guarantee the existence of equilib-ria described by ergodic Markov processes with a Borel state space S. Let 9(S) denote the probability measures on S, and let s- G(s) c 4?(S) be a (possibly empty-valued) correspondence with closed graph characterizing intertemporal consistency, as prescribed by some particular model. A nonempty measurable set J c S is self-justified if G(s) n 9?(J) is not empty for all s E J. A time-homogeneous Markov equilibrium (THME) for G is a self-justified set J and a measurable selection TI: J-9 _(J) from the restriction of G to J. The paper gives sufficient conditions for existence of compact self-justified sets, and applies the theorem: If G is convex-valued and has a compact self-justified set, then G has an THME with an ergodic measure. The applications are (i) stochastic overlapping generations equilibria, (ii) an extension of the Lucas (1978) asset market equilibrium mnodel to the case of heterogeneous agents, and (iii) equilibria for discounted stochastic games with uncountable state spaces.

Julian M. Alston, Kenneth A. Foster, Richard D. Gree, Estimating Elasticities with the Linear Approximate Almost Ideal Demand System: Some Monte Carlo Results, The Review of Economics and Statistics, Vol. 76, No. 2 (May, 1994), pp. 351-356

The U.S. labor market has recently experienced two dramatic trends: a falling male-female pay gap and a rising level of labor-market inequality. After decades of near-constancy at about 60 percent, the ratio of women's to men's pay has risen steadily since the late 1970's. At the same time, there were substantial increases in overall wage inequality for both men and women (Lawrence F. Katz and Kevin M. Murphy, 1992; Blau and Kahn, 1993). Wage inequality rose both within and between education and experience groups, and this has been interpreted as reflecting primarily higher returns to both measured and unmeasured labor-market skills (Katz and Murphy, 1992; Chinhui Juhn et al., 1993). This paper addresses the connection between these two important developments. When analyzing gender differentials in pay, economists commonly focus on malefemale differences in skills and on differences in the treatment of equally qualified men and women (i.e., discrimination). Both of these may be considered gender-specific factors influencing the pay gap. Research on these gender-specific factors suggests that women tend to be less skilled than men, on average, and to be located in lower-paying industries and occupations. This in turn suggests that overall wage structure can also have an important effect on the gender pay gap. (Wage structure describes the array of prices set for various labor-market skills, measured and unmeasured, and the rents received for employment in particular sectors of the economy.) For example, since women on average have less experience than men, an increase in the return to experience (as in fact occurred over the 1970s and 1980s) would cause the gender pay gap to rise, even if women's relative level of experience and their gender-specific treatment by employers remained the same. Similarly, an increase in the returns to employment in male occupations and industries would widen the gender differential, all else equal. In earlier work, we found overall wage inequality to be very important in explaining international differences in the gender pay gap (Blau and Kahn, 1992, 1994). In particular, we addressed a paradox. On the one hand, U.S. women compare favorably to those in other countries in terms of their relative qualifications and occupational status. Further, the United States has had a longer and often stronger commitment to equal pay and equal employment policies than most other industrialized countries. Yet the gender pay gap in the United States is larger than in most of these countries. An important part of the explanation for this pattern is the high level of wage inequality (i.e., high returns to skill) in the United States, which puts an exceptionally large penalty on being below average in the wage distribution. Our results suggest that the U.S. gap would be similar to that in countries like Sweden or Australia (the countries with the smallest gaps) if the United States had their level of wage inequality. The implication of our earlier research on international differences in the gender gap is that in recent years American women have been swimming upstream in a labor market that was growing increasingly unfavorable to low-wage workers. In the face of this rising inequality, women's relative skills and treatment have to improve merely for the pay gap to remain constant; still larger gains are necessary for it to be reduced. * Blau: Institute of Labor and Industrial Relations, University of Illinois, Champaign, IL 61820, and NBER; Kahn: Institute of Labor and Industrial Relations, University of Illinois. We thank Claudia Goldin and participants at the NBER Labor Studies meeting and the University of Illinois and Cornell Labor Economics Workshops for helpful comments, and Jennifer Berdahl for excellent research assistance. Portions of this work were completed while the authors were visiting fellows at the Australian National University, Canberra.