This paper examines the progressive development of the new institutional economics over the past quarter century. It begins by distinguishing four levels of social analysis, with special emphasis on the institutional environment and the institutions of governance. It then turns to some of the good ideas out of which the NIE works: the description of human actors, feasibility, firms as governance structures, and operationalization. Applications, including privatization, are briefly discussed. Its empirical successes, public policy applications, and other accomplishments notwithstanding, there is a vast amount of unfinished business.

There is a global trend in initial public offerings toward the increased use of book building. Relative to other methods such as auctions, a key feature of book building is that the underwriter has total discretion in allocating shares, allowing allocations to be based on long-term relationships between underwriters and investors. In a multiperiod model with endogenous (and costly) information acquisition, I show that the underwriter's ability to lower underpricing depends largely on its ability to favor regular uninformed investors. One implication is that the hybrid book building/open offer method, which is becoming increasingly popular internationally, will lead to higher underpricing than straight book building.

This paper investigates tax effects in the Canadian government bond market during the period 1964—1986. Unlike previous studies, we apply both statistical and nonstatistical teststo analyze clientele effects and market equilibria. The results divide the sample into two distinct periods of time, with the end of 1976 marking the division. We find that tax effects are almost nonexistent in the Canadian government bond market before the end of 1976, but are predominant in the post-1976 period. Non-segmented market equilibria cannot be rejected before 1977, but are strongly rejected after 1976. In fact, segmented equilibria with clientele effects in both quantities and prices characterize the entire five year period from 1982 to 1986. These findings are consistent with tax reforms, government deficit financing and interest rate fluctuations in Canada during our sample period.

We analyze the link between workers' discretion and incentives in an organization that lasts for several periods. In a long‐lasting affiliation, it is possible for the principal to learn and update her beliefs about essential characteristics associated with either the job or the agent. This learning possibility has an important effect on the link between workers' discretion and incentives.

Economics is not only a social science, it is a genuine science. Like the physical sciences, economics uses a methodology that produces refutable implications and tests these implications using solid statistical techniques. In particular, economics stresses three factors that distinguish it from other social sciences. Economists use the construct of rational individuals who engage in maximizing behavior. Economic models adhere strictly to the importance of equilibrium as part of any theory. Finally, a focus on efficiency leads economists to ask questions that other social sciences ignore. These ingredients have allowed economics to invade intellectual territory that was previously deemed to be outside the discipline's realm.

Threshold models have a wide variety of applications in economics. Direct applications include models of separating and multiple equilibria. Other applications include empirical sample splitting when the sample split is based on a continuously-distributed variable such as firm size. In addition, threshold models may be used as a parsimonious strategy for nonparametric function estimation. For example, the threshold autoregressive model (TAR) is popular in the nonlinear time series literature. Threshold models also emerge as special cases of more complex statistical frameworks, such as mixture models, switching models, Markov switching models, and smooth transition threshold models. It may be important to understand the statistical properties of threshold models as a preliminary step in the development of statistical tools to handle these more complicated structures. Despite the large number of potential applications, the statistical theory of threshold estimation is undeveloped. It is known that threshold estimates are super-consistent, but a distribution theory useful for testing and inference has yet to be provided. This paper develops a statistical theory for threshold estimation in the regression context. We allow for either cross-section or time series observations. Least squares estimation of the regression parameters is considered. An asymptotic distribution theory for the regression estimates (the threshold and the regression slopes) is developed. It is found that the distribution of the threshold estimate is nonstandard. A method to construct asymptotic confidence intervals is developed by inverting the likelihood ratio statistic. It is shown that this yields asymptotically conservative confidence regions. Monte Carlo simulations are presented to assess the accuracy of the asymptotic approximations. The empirical relevance of the theory is illustrated through an application to the multiple equilibria growth model of Durlauf and Johnson (1995).

We present a simple model of managerial reporting bias for a setting in which the capital market is uncertain about the manager's reporting objective. In this setting, the manager's reporting bias reduces the value relevance of the manager's report; that is, it adds noise to the report. Through comparative static results, our model yields insights into factors that affect the slope and intercept terms in a regression of price on earnings. Specifically, we find that the information content of the manager's report, as captured by the earnings slope coefficient, falls as the private cost to the manager of biasing reports falls, and as the uncertainty about the manager's objective increases. We also find that the magnitude of the adjustment for the expected amount of bias, as captured by the absolute value of the intercept, falls as the uncertainty about the manager's objective increases. Finally, to highlight conditions under which managers would lobby to retain an option to bias reports (i.e., retain reporting flexibility), we analyze the effect of the option to bias on the manager's welfare. For example, we show that the ex ante benefit from biasing the report is positive if there is sufficient uncertainty about the manager's reporting objective.

Christian Leuz, Robert E. Verrecchia, The Economic Consequences of Increased Disclosure, Journal of Accounting Research, Vol. 38, Supplement: Studies on Accounting Information and the Economics of the Firm (2000), pp. 91-124

This paper surveys research on the welfare cost of inflation. New estimates are provided, based on U.S. time series for 1900–94, interpreted in a variety of ways. It is estimated that the gain from reducing the annual inflation rate from 10 percent to zero is equivalent to an increase in real income of slightly less than one percent. Using aggregate evidence only, it may not be possible to estimate reliably the gains from reducing inflation further, to a rate consistent with zero nominal interest.