Organizations & Markets

We argue that although decentralization has advantages in finding low-cost solutions, these advantages are accompanied by coordination problems, which lead to delay or duplication of effort or both. Consequently, decentralization is desirable when there is little urgency or a great deal of private information, but it is strictly undesirable in urgent problems when private information is less important. We also examine the effect of large numbers and find that coordination problems disappear in the limit if distributions are common knowledge.

By committing to terminate funding if a firm's performance is poor, investors can mitigate managerial incentive problems. These optimal financial constraints, however, encourage rivals to ensure that a firm's performance is poor; this raises the chance that the financial constraints become binding and induce exit. We analyze the optimal financial contract in light of this predatory threat. The optimal contract balances the benefits of deterring predation by relaxing financial constraints against the cost of exacerbating incentive problems. (JEL 610)

The issue of providing segment disclosures has renewed significance because the Securities & Exchange Commission (SEC) has been considering the extension of segment disclosures, both line-of-business (LOB) and geographically segmented (GEOG), to all interim financial statements. To determine whether GEOG data provide incremental information about the earnings process, the specific contribution of sales and income GEOG data was evaluated by estimating their predictive ability. Two sets of GEOG predictions were used in the predictive accuracy tests.

Research on object concepts has identified one level of abstraction as "basic" in cognition and communication. We investigated whether concepts for routine social events have a basic level by replicating the converging operations used to investigate object concepts. In Experiment I, subjects were presented with event names from a taxonomy and were asked to list the actions comprising the event.

The terms dual city and post-industrial city are intended to capture those economic and demographic characteristics that distinguish modern urban centers, such as New York, from cities that retain large manufacturing activities and from earlier versions of themselves. The people and businesses in New York City today are markedly different not only from those in Peoria, but from those in New York City one-quarter century ago. This chapter describes how the local public sector has responded to these socioeconomic changes.

Knowledge of the one-month interest rate is useful in forecasting the sign as well as the variance of the excess return on stocks. The services of a portfolio manager who makes use of the forecasting model to shift funds between bills and stocks would be worth an annual management fee of 2 percent of the value of the assets managed. During 1954:4 to 1986:12, the variance of monthly returns on the managed portfolio was about 60 percent of the variance of the returns on the value weighted index, whereas the average return was two basis points higher.

This paper examines the properties of a market solution to the output uncertainty problem faced by unincorporated primary producers. An insurance contract is formulated and shown to provide income insurance to producers without exposing insurers to moral hazard. The equilibrium relative to this contract is shown to be equivalent to that effected by a stock market available to all producers.