Calls from practice suggest that audit committee members with industry expertise can improve audit committee effectiveness. Nevertheless, regulators and the extant literature have focused on the financial expertise of the audit committee. We posit that audit committee industry knowledge is valuable because accounting guidance, estimates, and oversight of the external auditor are often linked to a company's operations within a particular industry. Taking a holistic view, we examine two measures of financial reporting quality (financial restatements and discretionary accruals) and two measures of external auditor oversight (audit and nonaudit fees). As predicted, we find that audit committee members who are both accounting and industry experts perform better than those with only accounting expertise. We also find that in certain instances, supervisory experts who are also industry experts perform better than supervisory experts alone. Overall, these results suggest that industry expertise, when combined with accounting expertise, can improve the effectiveness of the audit committee in monitoring the financial reporting process. Data Availability: All data are gathered from publicly available sources.

We examine the impact on share prices of firms whose CEOs and CFOs certify their financial statements under oath, pursuant to the administrative order issued by the SEC on June 27, 2002. We hypothesize that (1) the certification provides assurance to investors by making disclosure more credible and by reducing information asymmetry between owners and management, and (2) the assurance value of certification is reflected in the stock price of the certifying company. Overall, the empirical results are consistent with our hypotheses. We observe, on average, positive abnormal returns for firms whose CEOs/CFOs certified their financial statements by August 14, 2002. Based on an analysis of bid-ask spreads, certifying firms experienced a significant decline in information asymmetry after certification. In cross-sectional analyses, we find abnormal returns are positively associated with firms that were under investigation, that used Andersen as their auditor, and that practiced aggressive revenue recognition.

This paper considers the costs of reducing consumption of a good by making its production illegal and punishing apprehended illegal producers. We use illegal drugs as a prominent example. We show that the more inelastic either demand for or supply of a good is, the greater the increase in social cost from further reducing its production by greater enforcement efforts. So optimal public expenditures on apprehension and conviction of illegal suppliers depend not only on the difference between the social and private values from consumption but also on these elasticities. When demand and supply are not too elastic, it does not pay to enforce any prohibition unless the social value is negative. We also show that a monetary tax could cause a greater reduction in output and increase in price than optimal enforcement against the same good would if it were illegal, even though some producers may go underground to avoid a monetary tax. When enforcement is costly, excise taxes and quantity restrictions are not equivalent.

We analyze a unique data set on multiunit auctions, which contains the actual demand schedules of the bidders as well as the auction awards in over 400 Swedish Treasury auctions. First, we document that bidders vary their prices, bid dispersion, and the quantity demanded in response to increased uncertainty at the time of bidding. Second, we find that bid shading can be explained by a winner’s curse–driven model in which each bidder submits only one bid, despite the fact that the bidders in our data set use much richer bidding strategies. Third, we explore the extent to which the received theories of multiunit auctions are able to offer insights into the bidder behavior we observe. Our empirical evidence is consistent with some of the predictions of the models of auctions that emphasize private information, the winner’s curse and the champion’s plague. While the models of multiunit auctions serve as useful guideposts, our empirical findings also point to several new areas of research in multiunit auctions that are of policy and theoretical interest.

This paper examines the EPA's decision to cancel or continue the registrations of cancer-causing pesticides that went through the special review process between 1975 and 1989. Despite claims to the contrary, our analysis indicates that the EPA indeed balanced risks against benefits in regulating pesticides: Risks to human health or the environment increased the likelihood that a particular pesticide use was canceled by the EPA; at the same time, the larger the benefits associated with a particular use, the lower was the likelihood of cancellation. Intervention by special-interest groups was also important in the regulatory process. Comments by grower organizations significantly reduced the probability of cancellation, whereas comments by environmental advocacy groups increased the probability of cancellation. Our analysis suggests that the EPA is fully capable of weighing benefits and costs when regulating environmental hazards; however, the implicit value placed on health risks--$35 million per applicator cancer case avoided--may be considered high by some persons.

This paper explores Paul N. Rosenstein-Rodan's idea that simultaneous industrialization of many sectors of the economy can be profitable for them all even when no sector can break even industrializing alone. The authors analyze this idea in the context of an imperfectly-competitive economy with aggregate demand spillovers, and interpret the big push into industrialization as a move from a bad to a good equilibrium. They present three mechanisms for generating a big push and discuss their relevance for less-developed countries.

We show that the largest increase in unemployment benefits in US history had large spending impacts and small job-finding impacts. This finding has three implications. First, increased benefits were important for explaining aggregate spending dynamics—but not employment dynamics—during the pandemic. Second, benefit expansions allow us to study the MPC of normally low-liquidity households in a high-liquidity state. These households still have high MPCs. This suggests a role for permanent behavioral characteristics, rather than just current liquidity, in driving spending behavior. Third, the mechanisms driving our results imply that temporary benefit supplements are a promising countercyclical tool.

Motivated by the question of how one should evaluate professional election forecasters, we study a novel dynamic mechanism design problem without transfers. A principal who wishes to hire only high-quality forecasters is faced with an agent of unknown quality. The agent privately observes signals about a publicly observable future event, and may strategically misrepresent information to inflate the principal’s perception of his quality. We show that the optimal deterministic mechanism is simple and easy to implement in practice: it evaluates a single, optimally timed prediction. We study the generality of this result and its robustness to randomization and noncommitment.

Premiums in health insurance markets frequently do not reflect individual differences in costs, either because consumers have private information or because prices are not risk rated. This creates inefficiencies when consumers self-select into plans. We develop a simple econometric model to study this problem and estimate it using data on small employers. We find a welfare loss of 2-11 percent of coverage costs compared to what is feasible with risk rating. Only about one-quarter of this is due to inefficiently chosen uniform contribution levels. We also investigate the reclassification risk created by risk rating individual incremental premiums, finding only a modest welfare cost.

High-performance work systems give workers more discretion, thereby increasing effort productivity but also shirking opportunities. We show experimentally that screening for work attitude and labor market competition are causal determinants of the viability of high-performance work systems, and we identify the complementarities between discretion, rent-sharing, and screening that render them profitable. Two fundamentally distinct job designs emerge endogenously in our experiments: “bad” jobs with low discretion, low wages, and little rent-sharing, and “good” jobs with high discretion, high wages, and substantial rent-sharing. Good jobs are profitable only if employees can be screened, and labor market competition fosters their dissemination.