In this note, a loss shared by the security holders of merging firms is pointed out: separate corporate entities provide double protection against future negative cash flows that are partof any production process (e.g., when customer or employee liabilities exceed future income), independent of whether or not debt is used in the corporate capital structure. A merger involvesa relinquishment of this double protection in return for a less valuable single protection: limited liability in the merged corporation against combined negative cash flows.

The exchange rate is recognised as a particularly tricky subject for modelling and prediction. The problems of unobservables such as expectations, of simultaneity, and of policy changes (both overt and covert) in the sample period to which models must be fitted may account for the disappointing results of recent attempts to test theories of exchange rate determination. This paper develops an appropriate empirical model to deal with these problems; it allows consideration of the proper interpretation of theoretical assumptions and determination of how far modelling for ex ante prediction can succeed.

Frank H. Selto, Maclyn L. Clouse, An Investigation of Managers' Adaptations to SFAS No. 2: Accounting for Research and Development Costs, Journal of Accounting Research, Vol. 23, No. 2 (Autumn, 1985), pp. 700-717

This paper shows that when uncertainty is taken into account explicitly, taxation of corporate income can leave corporate investment incentives, and individual savings incentives, basically unaffected, in spite of the sizable tax revenues collected. In some plausible situations, such taxes can increase efficiency. The explanation for these surprising results is that the government, by taxing capital income, absorbs a certain fraction of both the expected return and the uncertainty in the return. While investors as a result receive a lower expected return, they also bear less risk when they invest, and these two effects are largely offsetting.

The familiar decision analysis setting in accounting, such as a cost‐volume‐profit analysis setting, is modeled as arising in a “larger” context in which subsequent choice is also contemplated. We then ask when this “larger” context decomposes in a manner such that the immediate problem of interest can be modeled as an expected utility maximization problem that is completely divorced from the subsequent choice problem. Outcome and taste independence conditions are the key ingredients in being able to model the immediate problem as having no link whatever to its successor. Résumé. Le contexte dans lequel les techniques d'analyse de décision comme par exemple l'analyse coĉt‐volume‐profit est utilisée est un cadre d'un modèle élargi qui tient compte du choix subséquent. On se demande en quelles circonstances ce contexte élargi peut‐il se décomposer de façon telle que le problème d'intérêt immédiat en soit un de maximisation complètement séparé du problème du choix subséquent. Le résultat et des conditions d'indépendance de préférence sont les ingrédients clés pour modeler le problème immédiat comme n'ayant aucun lien avec son successeur.

This paper summarizes results from a validation study in which administrative records from a large manufacturing company are used to validate survey responses of a sample of workers from that company. Relatively little evidence of bias is found in reports of prior-year earnings and unemployment, the more salient fringe benefits, and union status. Quite diverse amounts of error variance are found in the survey reports, ranging from very small for reports of job tenure, annual earnings, and annual unemployment to very large for work hours and especially for a measure of hourly earnings constructed by dividing annual earnings by annual work hours. Furthermore, it is found that the conventional assumptions regarding measurement error in earnings models are not justified. In particular, there appears to be an important correlation between the measurement error in the reports of earnings and the level of job tenure, producing a bias in the estimated payoff to job tenure of roughly 30%. This result suggests a need for a greater understanding of the correlates of survey response errors.

The distributional impact of industrial pollution abatement is measured for the years 1973 and 1977. The findings indicate that in 1977 1.09% of income or 0.510% of personal consumption expenditures of the lowest income class paid indirectly for abatement costs implicit in purchased goods. For the highest income class, the corresponding figures were 0.218% and 0.423%, respectively. In addition, abatement costs per dollar of output are presented for representative industries.