This article shows that correlated errors in news about fundamentals are an important, rational determinant of excess comovement. Individual analysts’ forecast errors tend to be correlated across stocks. Using a proxy for correlated forecast errors based on analyst coverage, I find that stocks with similar sets of analysts exhibit more excess comovement, controlling for industry and other variables. Exogenous changes in commonality in analyst coverage around i) brokerage firm mergers and ii) additions to an index lead to changes in excess comovement. This information channel explains 10% to 25% of the increase in comovement around additions to the S&P 500 index.

We show that the need to "posture" can help solve the holdup problem inherent in many multistage relationships, including those between entrepreneurs and venture capitalists. Posturing arises when an informed party needs to send a strong signal to induce skeptical third parties like employees, suppliers, customers, or competitors to develop/maintain relationships with the firm or take other actions that increase firm value. In the venture capital context, this can be credibly achieved if the VC publicly invests at high prices in later rounds. This tempers holdup by shifting ex-post bargaining power toward the entrepreneur, inducing him to exert greater effort.

A recent line of research has exposed some technological determinants of the structure of industries that produce more than one good. The analyses of both multiproduct perfect competition and natural monopoly require a generalized notion of average cost and, in addition, several newly identified technological characteristics pertinent only to joint production. This paper provides an overview of these new results, and suggests a unifying framework in which the theory can be further developed.

I began my article Consumer's Surplus Without Apology (henceforth, CSWA) with the words The purpose of this paper is to settle the controversy surrounding consumer's surplus... (p. 589). That is my purpose here, as well. However, George McKenzie's published comments have taught me that if articles and careful analyses settle controversies, they only do so very slowly. McKenzie makes sweeping and attacking statements about CSWA but fails to substantiate them. He scatters birdshot criticisms at CSWA that are based on misreadings of rather clear material. He offers an example in which he miscalculates multiproduct consumer's surplus. Finally, he contends that his own (with Ivor F. Pearce) approach to welfare analysis is preferable to the consumer's surplus approach. In this reply, to keep the record straight, I show in Section I that each of McKenzie's strongly worded attacks is unsubstantiated and invalid, and that each of his more technical sounding criticisms rests only on misreadings of CSWA. More interestingly, in Section II, I summarize some of the theory of multiproduct consumer's surplus that is needed to understand the calculatiop error in and proper interpretation of the example that McKenzie proffers. In Section III, I argue that the approach to welfare analysis advocated by McKenzie and Pearce is far less useful than the consumer's surplus methodology.

Utilizing a cross-sectional trade flow model of the type developed by Hans Linnemann and Jan Tinbergen, this study attempts to isolate empirically the major forces which have shaped European trade relations over the period 1951-67. We first estimate via the use of dummy variables the impact of the European Economic Community (EEC) and the European Free Trade Association (EFTA) on member trade. For each year of the European integration period (1959-67), a crosssectional equation is estimated ancl used to test for the existence and approximate size of the respective integration effects. The equation is also calculated for the eight years prior to the integration period to obtain a clear picture of the forces which were at work before the formation of the EEC. Secondly, a base year equation is used to make projection estimates of the gross trade creation and European trade diversion effects of the two communities.