This paper proposes and tests a quadratic-loss utility function for modeling corporate earnings forecasting, where financial analysts trade off bias to improve management access and forecast ...accuracy. Optimal forecasts with minimum expected error are optimistically biased and exhibit predictable cross-sectional variation related to analyst and company characteristics. Empirical evidence from individual analyst forecasts is consistent with the model's predictions. These results suggest that positive and predictable bias may be a rational property of optimal earnings forecasts. Prior studies using classical notions of unbiasedness may have prematurely dismissed analysts' forecasts as being irrational or inaccurate.
During 1984-1996, welfare and tax policy were changed to encourage work by single mothers. The Earned Income Tax Credit was expanded, welfare benefits were cut, welfare time limits were added, and ...welfare cases were terminated. Medicaid for the working poor was expanded, as were training programs and child care. During this same time period there were unprecedented increases in the employment and hours of single mothers. We show that a large share of the increase in work by single mothers can be attributed to the EITC and other tax changes, with smaller shares for welfare benefit cuts, welfare waivers, training programs and child care programs.
A distinguishing feature of recent changes to the US system of public assistance is its increasing focus on
working families and reliance on the
tax system to transfer dollars to needy families. ...After a decade in near total obscurity, the earned income tax credit (EITC) was expanded to become the largest cash-transfer program for lower-income families with children. Advocates of the EITC argue that, unlike traditional welfare, the credit helps “promote both the values of family and work”. Indeed, empirical evidence consistent with economic theory suggests that the EITC promotes employment among eligible unmarried women with children. To target benefits to lower-income families, however, the EITC is based on
family income, leading to traditional welfare-type disincentives for most eligible secondary earners. In fact, the EITC is likely to reduce overall family labor supply among married couples.
This paper examines the labor force participation response of married couples to EITC expansions between 1984 and 1996. The effect of the credit is estimated using both quasi-experimental and traditional reduced-form labor supply models. Results from both models show the same qualitative conclusion, that the EITC expansions reduced total family labor supply of married couples. In all cases, we find a decline in labor force participation by married women that more than offsets any rise in participation by their spouses. While the labor force participation rate of married men increased by about 0.2 percentage points, that of married women decreased by just over a full percentage point. These aggregate effects mask substantial heterogeneity in the population. Women facing the strongest disincentives were more than 2 percentage points less likely to work after the expansions. These findings imply that the EITC is effectively subsidizing married mothers to stay home, and therefore, have implications for the design of the program.
This paper provides firm- and industry-level evidence of the effects of capital structure on product market outcomes for a large cross-section of industries over a number of years. The analysis uses ...shocks to aggregate demand as surrogates for exogenous changes in the product market environment. I find that debt financing has a negative impact on firm (relative-to-industry) sales growth in industries in which rivals are relatively unlevered during recessions, but not during booms. In contrast, no such effects are observed for firms competing in high-debt industries. At the industry level, markups are more countercyclical when industry debt is high. The cyclical dynamics I find for firm sales growth and for industry markups are consistent with Chevalier and Scharfstein's (American Economic Review (1996)) prediction that firms which rely heavily on external financing are more likely to cut their investment in market share building in response to negative shocks to demand and that the competitive outcomes resulting from such actions depend on the financial structures of their industry rivals.
This paper integrates and extends the literatures on industry evolution and dominant firms to develop a dynamic theory of dominant and fringe competitive interaction in a segmented industry. It ...argues that a dominant firm, seeing contraction of growth in its current segment(s), enters new segments in which it can exploit its technological strengths, but that are sufficiently distant to avoid cannibalization. The dominant firm acts as a low-cost Stackelberg leader, driving down prices and triggering a sales takeoff in the new segment. We identify a "churn" effect associated with dominant firm entry: fringe firms that precede the dominant firm into the segment tend to exit the segment, while new fringe firms enter, causing a net increase in the number of firms in the segment. As the segment matures and sales decline in the segment, the process repeats itself. We examine the predictions of the theory with a study of price, quantity, entry, and exit across 24 product classes in the desktop laser printer industry from 1984 to 1996. Using descriptive statistics, hazard rate models, and panel data methods, we find empirical support for the theoretical predictions.
The main purpose of this study is to analyze the relationship between pollution and income at household level. The study is motivated by the recent literature emphasizing the importance of income ...distribution for the aggregate relation between pollution and income. The main findings from previous studies are that if the individual pollution–income relationship is non-linear, then aggregate pollution for, say, a whole country, will depend not only on average income, but also on how income is distributed. To achieve our objective we formulate a model for determining the choice of consumption of goods in different types of household. Furthermore we link the demand model to emission functions for various goods. The theoretical analysis shows that without imposing very restrictive assumptions on preferences and the emission functions, it is not possible to determine
a priori the slope or the curvature of the pollution–income relation. The empirical analysis shows that, given the model used, the pollution–income relation has a positive slope in Sweden and is strictly concave for all three pollutants under study (CO
2, SO
2, NO
x
), at least in the neighbourhood of the observed income for an average household. We also show that altering the prevailing income distribution, holding average income constant, will affect aggregate emissions in the sense that an equalization of incomes will give rise to an increase in emissions. One implication is then that the development of aggregate pollution due to growth depends not only on the income level, but also on how growth is distributed.
Recent theoretical work predicts a new margin of firm adjustment to trade liberalization; that is, multi-product firms alter their product mix to focus on their core competencies in response to trade ...liberalization. Using detailed product data from U.S. public firms, I find strong empirical support for this prediction. Specifically, import competition leads multi-product firms to drop peripheral products to refocus on core production. The weaker the linkages that a peripheral product shares with the core (as measured by the extent of joint sales, joint procurement, joint production, and joint sectorship), the more likely the peripheral product is to be divested in response to import competition. Certains travaux théoriques récents prédisent une nouvelle marge d'ajustement de la firme à la libéralisation du commerce : les firmes multi-produits changent leur mix de produits pour se concentrer sur leurs compétences de base en réponse à la libéralisation du commerce. A partir de données détaillées sur les produits de firmes américaines, on découvre que cette prédiction a un fort support empirique. Spécifiquement, la concurrence de l'importation amène la firme multi-produits à laisser tomber des produits périphériques pour recentrer sa production sur son noyau dur de compétences. Plus faibles sont les liens que partage un produit périphérique avec le noyau dur (mesuré par l'étendue des ventes communes, des approvisionnements conjoints, de la production liée, de la participation au même secteur) plus est grande la probabilité qu'on va desinvestir dans ce produit en réponse à la concurrence de l'importation.
We describe the enormous changes in social and tax policy in recent years that have encouraged work by single mothers. We document the magnitude and timing of changes in federal and state income ...taxes, AFDC and Food Stamp benefits, Medicaid, and child care programs. We also describe how these changes differed across groups of states and different types of families. We then examine whether the changes in employment are consistent with a causal effect of these policies on employment, using multiple comparison groups and two datasets over a long time period. We find substantial evidence of large tax effects on employment.
A number of studies have suggested that countries (or regions) with access to larger markets have higher wages. In this paper, we examine whether access to larger markets affects skilled and ...unskilled workers differently. We develop a model relating two key measures of market size, market and supplier access, to industry value added prices. We then estimate the effects of growth in these measures on factor returns in U.S. manufacturing industries between 1984 and 1996. We find that growth in these measures can explain around 5% of the rise in the skill premium over the sample period. (JEL F12, F16, L60)
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