SEQUENTIAL VOTING WHEN LONG ELECTIONS ARE COSTLY

This paper analyzes sequential voting in binary elections when voters are motivated by a desire both to elect their preferred candidate and to avoid a long and costly election. I find a unique equilibrium in which a voter's action depends both on the intensity of the voter's preferences as well as how well the candidates have done in earlier voting rounds. This equilibrium results in momentum in which voters are more likely to vote for the candidate currently in the lead. Furthermore, the probability a voter votes for a candidate is increasing in the size of the candidate's lead. As a consequence, a candidate is more likely to win the election if the candidate's stronger supporters vote earlier in the election.     

RESALE PRICE MAINTENANCE AND INTERLOCKING RELATIONSHIPS*

Dampening of interbrand as well intrabrand competition is often advanced to justify per se illegality of RPM. We analyze this argument in a context where rival manufacturers distribute their products through the same competing retailers. We show that RPM indeed limits the exercise of competition at both levels and can generate industry‐wide monopoly pricing. The impact on prices depends on the extent of potential competition at either level as well as on the parties' influence in determining the terms of the contracts. Our analysis sheds a new light on ongoing legal developments and is supported by recent empirical studies.     

Original Issue High Yield Bonds: Aging Analyses of Defaults,Exchanges, and Calls

This paper presents an aging analysis of 741 high yield bonds and finds default, exchange, and call percentages substantially higher than reported in earlier studies. By December 31, 1988, cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue years 1979–1983 and from 3 to 9 percent for issue years 1984–1986. Exchanges are also a significant factor although they often are followed by default. Moreover, a significant percentage of high yield debt, 26–47 percent for 1977–1982, has been called. By December 31, 1988, approximately one third of the bonds issued in 1977–1982 has defaulted or been exchanged, and an additional one third had been called. On average, only 28 percent of these issues are still outstanding. There is no evidence that early results for more recent issue years differ markedly from issue years 1977 to 1982.     

Symposium on Public Policy Issues in Finance

The thesis of this symposium, organized by James Bicksler, was that while finance theory will surely inform practitioners, it seems appropriate to pay some attention to the opposite flow: practitioners can inform theory. Contributors include a distinguished group of practitioners with extensive backgrounds in economics, and economists with extensive public policy experience: Martin Feldstein, Robert Glauber, David Mullins, and Steven Wallman. Their topics range from privatizing social security, to managing market crashes, to the regulatory agency cost problem, to regulatory constraints in a technologically advanced world.     

A proposed Procedure for Facilitating the Analysis of Lease-Purchase Decisions by Consumers

Advertising extolling the advantages of leasing an automobile is increasing, leading many consumers to ask whether leasing makes sense as an alternative to ownership. This paper sets forth a simple procedure which professional financial advisors and educators can use to help consumers make this decision. The procedure can be applied to any buy-lease decision. In what follows, key variables in the buy-lease decision are identified, and an example using actual data is presented to illustrate the procedure.     

The Credit Ratings Game

The collapse of AAA‐rated structured finance products in 2007 to 2008 has brought renewed attention to conflicts of interest in credit rating agencies (CRAs). We model competition among CRAs with three sources of conflicts: (1) CRAs conflict of understating risk to attract business, (2) issuers' ability to purchase only the most favorable ratings, and (3) the trusting nature of some investor clienteles. These conflicts create two distortions. First, competition can reduce efficiency, as it facilitates ratings shopping. Second, ratings are more likely to be inflated during booms and when investors are more trusting. We also discuss efficiency‐enhancing regulatory interventions.     

PRODUCTIVE EFFICIENCY IN THE IVORIAN MANUFACTURING SECTOR: AN EXPLORATORY STUDY USING A DATA ENVELOPMENT ANALYSIS APPROACH

The African industrial structure is characterized by firm‐size heterogeneity with the coexistence of small, if not micro, enterprises in the informal sector and large formal organizations operating with modern technology. In this paper, using the Data Envelopment Analysis production frontier methodology, we investigate the technical efficiency of Ivorian manufacturing firms in four sectors of economic activity: textiles and garments, metal products, food processing, and wood and furniture. Efficiency scores are adjusted to take into account the impact of the external operating environment. These scores are then broken down into three elements: the purely managerial effect, the impact of the scale of production, and a technological effect capturing the potential gain that could result from the adoption of modern technology by small informal organizations. Not only formal activities prove to be more efficient in scaling their production but also, they greatly benefit from their modem technology.