Understanding the impacts of transitory oil supply shocks on world oil prices is crucial to the evaluation of the economic impacts of shocks and the design of policy responses to address those impacts. This paper integrates short-run and long-run approaches to oil price determination, with particular emphasis on the "two-price " structure of the world oil market—with coexisting short-term "spot" prices and long-term "contract " prices. Even transitory shocks are shown to exhibit persistence effects on long-term prices. Some implications for econometric models of the relationship between spot and contract prices are discussed. I.

This paper emphasizes the roles played by personal taxation and pension wealth in portfolio choice and composition. A theoretical discussion of the impacts of taxation and participation in social security and private pension systems on individual wealth allocation is followed by empirical evidence based on U.S. cross-section data. Both effects prove to be significant. Anticipated social security and private pension benefits exert a measurable influence on household portfolio allocation. Their omission from an asset demand model may lead to a misinterpretation of the impact of taxation on portfolio composition.

This paper examines CEO pay in the banking industry and the effect of deregulating the market for corporate control. Using panel data on 147 banks over the 1980s, we find higher levels of pay in competitive corporate control markets, i.e., those in which interstate banking is permitted. We also find a stronger pay-performance relation in deregulated interstate banking markets. Finally, CEO turnover increases substantially after deregulation. These results provide evidence of a managerial talent market — one which matches the level and structure of pay with the competitiveness of the banking environment.

One possible explanation for bidding firms earning positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less‐developed capital markets. Examining 392 bidder firms during the 1960s, we find the highest bidder returns when financially “unconstrained” buyers acquire “constrained” targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing. We also find that bidders generally retain target management, suggesting that management may have provided company‐specific operational information, while the bidder provided capital‐budgeting expertise.

One possible explanation for bidding firms earning positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less‐developed capital markets. Examining 392 bidder firms during the 1960s, we find the highest bidder returns when financially “unconstrained” buyers acquire “constrained” targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing. We also find that bidders generally retain target management, suggesting that management may have provided company‐specific operational information, while the bidder provided capital‐budgeting expertise.

This paper analyzes price adjustment in markets where trade takes place through both spot-market and long-term-contract transactions. The authors develop a model illustrating the role of the resulting two-price system in describing price adjustment to transitory shocks; persistence effects of these shocks on prices depends on, inter alia, the fraction of trades carried out through contracts. The model is tested on price data from the world copper and crude oil markets. Econometric tests of the model provide support for the hypothesis that the increase in the importance of spot markets in copper and oil is associated with an increase in the speed of adjustment of spot prices to supply and demand disturbances.

While recent research has emphasized the desirability of studying effects of changes in marginal tax rates on taxable income, broadly defined, there has been comparatively little analysis of effects of marginal tax rate changes on entrepreneurial entry. This margin is likely to be important both because of the likely greater elasticity of entrepreneurial decisions with respect to tax changes (relative to decisions about hours worked) and because of recent research linking entrepreneurship, mobility, and household wealth accumulation. Previous work focuses on how marginal tax rates affect work incentives, incentives to take compensation in taxable forms, and reporting incentives. In addition, both the level and the progressivity of tax rates can affect decisions about risky activities. The tax system offers insurance for taking risk since taxes depend on outcomes; however, asymmetric taxes on different outcomes, such as progressive rates, may discourage risk taking. Using the Panel Study of Income Dynamics for 1978-1993, we incorporate both of these effects of the tax system in empirical estimations of the probability that people enter self employment. While the level of the marginal tax rate does not affect entry into self employment in a consistent manner across specifications, we find robust results that

This paper examines the impact of Social Security on national saving and individual welfare in the presence of realistic capital market imperfections--market failure in the private provision of annuities and restrictions on borrowing against anticipated future wages. The introduction of Social Security increases lifetime welfare and reduces national saving if borrowing restrictions are absent. However, the increase in individual welfare is reduced, and in some cases eliminated, when borrowing constraints are taken into consideration. The substantial difference suggests the importance of reexamining the proportional payroll tax finance of Social Security.

Recent models of firm investment decisions stressing informational imperfections in capital markets provide a foundation for interpreting evidence that movements in internal finance can predict investment spending, even after one controls for measures of firms' investment opportunities. While such evidence is suggestive, it is often open to other interpretations. We examine these models using data on equipment investment in the U.S. agricultural sector. This sector is particularly interesting because it has experienced large fluctuations in net worth and the profitability of investment, and reasonable measures of net worth can be constructed. Our findings provide support for a class of "internal funds" models of investment under asymmetric information.