Auditing, Auditor size, Audit fees, Audit partnerships

This paper has two parts. The first part concentrates on modeling transitions out of unemployment using aggregated gross flow data. Models are estimated using monthly transition probabilities for March-April 1984. This analysis produces evidence consistent with negative duration dependence but sheds no light on the role of macroeconomic factors. The second part focuses on this issue. A time-series analysis of the proportion of long-term unemployment using data for four age and sex groups provides evidence that a proportionately greater increase in long-term unemployment in Australia in the 1970s has been associated with reduction in job availability and the effect of certain supply shocks.

In this reply, we point out that Chang and Shankar's measure of hedging performance, which they label HE1, is not an adequate measure. We describe an alternative measure, labeled HBS, which has a number of desirable ex ante and ex post statistical properties.

This paper employs recent developments in agency theory to study the impact that compensation contracts have on portfolio management investment decisions in a restricted mean-variance world. Two types of incentive contracts for mutual fund managers are analyzed and compared. The results show that the “symmetric” contract, while not necessarily eliminating agency costs, dominates the “bonus” contract in aligning the manager's interests with those of the investor.

If economists are united on anything, it is the proposition that monopoly prices reduce economic welfare by preventing the realization of the maximum gains from trade in any market. The extent of such distortions to efficiency are often called Harberger costs after Arnold Harberger's 1954 provocative attempt to measure the extent of these losses in the U.S. economy. More recent analysis has revealed that when monopoly power is achieved via regulation, at least part of the monopoly rents so gained will not be simple transfers from consumers to producers, but will be dissipated by producers' rent-seeking activity. Since such activity employs real resources, there are additional costs to monopolization beyond the Harberger costs as emphasized by Gordon Tullock (1967) and Richard Posner (1975). Indeed, Posner and others have argued that if competition for the monopoly rents is perfect, all of the expected rents from regulation will be converted to welfare losses. While Franklin Fisher's 1985 comment has qualified this conclusion somewhat, the upshot of the debate is that the rent-seeking, or Tullock, costs, may greatly exceed the Harberger costs.1 Another recent strand of the analysis concerns the time pattern over which monopoly returns are dissipated by competition to gain and hold the monopoly right. Robert McCormick et al. (1984) emphasize that to the extent such expenditures are sunk, they are forever lost and not recoverable by deregulation. While conceding the point, Martin Cherkes et al. (1986) argue that most rentseeking expenditures are recurring, not sunk, and therefore large gains from deregulation remain. The purpose of this essay is to point out that, recurring or sunk, even the largest specification of the Harberger and Tullock costs of regulatory monopolization may fall far short of the actual welfare costs. This is because the analysis concentrates on the rent-seeking Tullock costs and largely ignores the parallel rent-defending2 Tullock costs. A proper assessment of such rent-defending Tullock costs might more than double the maximum welfare costs of regulation suggested by Posner.

Behzad T. Diba, Herschel I. Grossman; On the Inception of Rational Bubbles, The Quarterly Journal of Economics, Volume 102, Issue 3, 1 August 1987, Pages 697–70

Empirically estimated flexible functional forms frequently fail to satisfy the appropriate theoretical curvature conditions. Lau and Gallant and Golub have worked out methods for imposing the appropriate curvature conditions locally, but those local techniques frequently fail to yield satisfactory results. We develop two methods for imposing curvature conditions globally in the context of cost function estimation. The first method adopts Lau's technique to a generalization of a functional form first proposed by McFadden. Using this Generalized McFadden functional form, it turns out that imposing the appropriate curvature conditions at one data point imposes the conditions globally. The second method adopts a technique used by McFadden and Barnett, which is based on the fact that a non-negative sum of concave functions will be concave. Our various suggested techniques are illustrated using the U.S. Manufacturing data utilized by Berndt and Khaled