It is generally difficult to know whether the parameters in nonlinear econometric models are point‐identified. We provide computationally attractive procedures to construct confidence sets (CSs) for identified sets of the full parameter vector and of subvectors in models defined through a likelihood or a vector of moment equalities or inequalities. The CSs are based on level sets of “optimal” criterion functions (such as likelihoods, optimally‐weighted or continuously‐updated GMM criterions). The level sets are constructed using cutoffs that are computed via Monte Carlo (MC) simulations from the quasi‐posterior distribution of the criterion. We establish new Bernstein–von Mises (or Bayesian Wilks) type theorems for the quasi‐posterior distributions of the quasi‐likelihood ratio (QLR) and profile QLR in partially‐identified models. These results imply that our MC CSs have exact asymptotic frequentist coverage for identified sets of full parameters and of subvectors in partially‐identified regular models, and have valid but potentially conservative coverage in models whose local tangent spaces are convex cones. Further, our MC CSs for identified sets of subvectors are shown to have exact asymptotic coverage in models with singularities. We provide local power properties and uniform validity of our CSs over classes of DGPs that include point‐ and partially‐identified models. Finally, we present two simulation experiments and two empirical examples: an airline entry game and a model of trade flows.

We propose a production-based general equilibrium model to study the link between timing of cash flows and expected returns, both in the cross-section of stocks and along the aggregate equity term structure. Our model incorporates long-run growth news with time-varying volatility and slow learning about the exposure that firms have with respect to these shocks. Our framework provides a unified explanation of the stylized features of the slope of the term structure of equity returns, its variations over the business cycle, and the negative relationship between cash-flow duration and expected returns in the cross-section of book-to-market-sorted portfolios. Received May 27, 2017; editorial decision October 12, 2017 by Editor Itay Goldstein.

We use a novel retail panel with detailed transaction records to study the effect of the Supplemental Nutrition Assistance Program (SNAP) on household spending. We use administrative data to motivate three approaches to causal inference. The marginal propensity to consume SNAP-eligible food (MPCF) out of SNAP benefits is 0.5 to 0.6. The MPCF out of cash is much smaller. These patterns obtain even for households for whom SNAP benefits are economically equivalent to cash because their benefits are below their food spending. Using a semiparametric framework, we reject the hypothesis that households respect the fungibility of money. A model with mental accounting can match the facts.

This article was originally published in 2017 in The Accounting Review 92 (3): 155-184.

Can electoral institutions induce lasting changes in citizens’ voting habits? We study the long-term and spillover effects of compulsory voting in the Swiss canton of Vaud (1900–1970) and find that this intervention increases turnout in federal referendums by 30 percentage points. However, despite its magnitude, the effect disappears quickly after voting is no longer compulsory. We find minor spillover effects on related forms of political participation that also vanish immediately after compulsory voting has been abolished. Overall, these results question habit formation arguments in the context of compulsory voting.

Our goal is to understand the extent to which cash-flow properties explain accruals. Using the Dechow, Kothari, and Watts (1998) model, we derive a negative relation between accruals and cash-flow changes, and show that the strength of the relation is linked to negative serial correlation in cash-flow changes. Dechow et al. (1998) also suggest that the strength of the relation between accruals and revenue changes relates to operating cycle length. Prior accrual models have not incorporated these theoretical relations. We show that incorporating cash-flow changes, serial correlation in cash-flow changes, and operating cycle length increases explanatory power of all accrual models considered (i.e., Jones 1991; Ball and Shivakumar 2006; McNichols 2002; Jeter and Shivakumar 1999). We find that incorporating these variables in accrual models also improves specification and power, aids detection of earnings management in AAER firms, and produces a nondiscretionary accrual estimate that better predicts future cash flows and earnings. These results suggest the importance of considering the economic role of accruals when predicting accruals.

We investigate a novel determinant of financial distress, namely, individuals' self‐efficacy, or belief that their actions can influence the future. Individuals with high self‐efficacy are more likely to take precautions that mitigate adverse financial shocks. They are subsequently less likely to default on their debt and bill payments, especially after experiencing negative shocks such as job loss or illness. Thus, noncognitive abilities are an important determinant of financial fragility and subjective expectations are an important factor in household financial decisions.

We examine the impact of rivals’ competitive activities on firms’ quantity-of-capital constraints in 60 countries. Prior work shows that competition increases the costs of debt and equity, which reduce the economic profit from investment. Capital constraints, however, may prevent firms from exploiting all positive NPV projects. Using unique survey data and several econometric techniques, we address endogeneity problems that affect both capital constraints and rivals’ competitive activities. We find that rivals’ competitive activities are positively associated with firms’ capital constraints and are more strongly correlated with capital constraints than banking sector competition. We also show that quantity-of-capital constraints are negatively related to firm growth, incremental to the cost of capital.

Using a sample of U.S. firms during the 1989–2015 period, we study whether the efficiency with which managers generate revenue is sensitive to monitoring by institutional shareholders. We find that institutional ownership is positively related to managerial efficiency. Our identification relies on a discontinuity in ownership around the Russell 1000/2000 Index threshold and suggests that the positive effect of institutional ownership on managerial efficiency is causal. Furthermore, we document that monitoring by institutions helps improve managerial efficiency, and that an exogenous increase in institutional ownership leads to higher pay-for-performance sensitivity. Finally, we find consistent results after excluding from our sample forced CEO turnovers, suggesting that institutional shareholders force incumbent managers to exert greater effort rather than influence the replacement of less efficient CEOs. Taken together, our findings highlight the important role played by institutional shareholders in getting the most out of corporate executives.

Gary Becker was an intellectual giant. No one had a greater impact on broadening economics and making its impact felt throughout the social sciences thanBecker. Indeed,MiltonFriedmanoncedescribedGaryBecker as the most important social scientist of the second half of the twentieth century. For those of us who knew him, he was themost creative thinker we ever encountered. It was his astounding imagination that made many of his early critics think of him as a heretic. They were correct: he was a heretic much like Luther, Copernicus, and Galileo, who transformed their worlds, just ashe transformedeconomics.Hebrought a rigorous and insightful approach to issues that were viewed as inherently noneconomic. Eventually, he won over the economics profession, detractors and all, who eventually became converts. Becker was a scientist in the true sense of the word.He believed that economics was useful only if it explained andhelped to improve theworld.He practiced what he preached and carefully analyzed all of the social problems he addressed. He was innovative yet rigorous, open to new thought yet disciplined in sticking to the established rules of analysis. Most importantly, he extended the boundaries of economics tomuch of social science.