Product liability ideally should promote efficient levels of product safety, but misdirected liability efforts may depress beneficial innovations. This paper examines these competing effects of liability costs on product R & D intensity and new product introductions by manufacturing firms. At low to moderate levels of expected liability costs, there is a positive effect of liability costs on product innovation. At very high levels of liability costs, the effect is negative. At the sample mean, liability costs increase R & D intensity by 15 percent. The greater linkage of these effects to product R & D rather than process R & D is consistent with the increased prominence of the design defect doctrine.

The literature on contracts predicts that some principals will pay agents rents, that is, amounts larger than those necessary to keep the agent in the contract. We calculated the earnings of the average franchisee in seventy franchise systems in various industries to determine whether rents are paid as a solution to the agency problem in franchise contracts. We found that many but not all systems paid rents, both ex post and ex ante, to the average franchisee. The results confirm those of Kaufmann and Lafontaine (1994), who found rents associated with McDonald's, but the magnitude of rents within the systems we study was generally much lower than those of McDonald's.

We investigate the source of information advantage in inter-dealer FX trading using data on trades and counter-party identities. In liquid dollar exchange rates, information is concentrated among dealers that trade most frequently and specialize their activity in a particular rate. In cross-rates, traders that engage in triangular arbitrage are best informed. Better-informed traders are also located on larger trading floors. In cross-rates, the ability to forecast flows explains all of the advantage of the triangular arbitrageurs. In liquid dollar rates, specialist traders can forecast both order-flow and the component of exchange rate changes that is uncorrelated with flow.

Individual food consumption data are used to examine three issues. First, is food consumption linked intertemporally at the individual level? Second, does the association between current and past consumption reflect habit or heterogeneity? Third, what do the estimates imply about the intertemporal elasticity of substitution? The authors find that habit matters, that controlling for heterogeneity reduces estimated habit effects, and that the product of the estimated intertemporal elasticity of substitution and the risk aversion parameter is less than one. These results all lead to rejection of time separable specifications of intertemporal consumption behavior.

W. Kip Viscusi, Michael J. Moore, Workers' Compensation: Wage Effects, Benefit Inadequacies, and the Value of Health Losses, The Review of Economics and Statistics, Vol. 69, No. 2 (May, 1987), pp. 249-261

Product liability ideally should promote efficient levels of product safety, but misdirected liability efforts may depress beneficial innovations. This paper examines these competing effects of liability costs on product R & D intensity and new product introductions by manufacturing firms. At low to moderate levels of expected liability costs, there is a positive effect of liability costs on product innovation. At very high levels of liability costs, the effect is negative. At the sample mean, liability costs increase R & D intensity by 15 percent. The greater linkage of these effects to product R & D rather than process R & D is consistent with the increased prominence of the design defect doctrine.