Economics Insights @ CBS

Sociologists contend that industries can be importantly characterized as sets of interlocking producer positions. This paper argues that this distinctively relational conception of a market represents a powerful framework for depicting and analyzing the process of technical change.

The present research is motivated by an interest in why organizational decision makers so often respond to accidents with remedy plans that focus narrowly on correcting human error rather than more environment-focused plans or more encompassing plans. We investigated the role of counterfactual thinking in the decision-making tendency toward human-focused plans. Our experiments indicated that even in a domain where human-focused remedies were not otherwise appealing, many participants decided on human-focused remedies after they had generated an “if only” conjecture about the accident.

We study the economic consequences of alternative hedge accounting rules in terms of managerial hedging decisions and wealth effects for shareholders. The rules we consider include the "fair-value" and "cash-flow" hedge accounting methods prescribed by the recent SFAS No. 133. We illustrate that the accounting method used influences the manager's hedge decision. We show that under no-hedge accounting, the hedge choice is different from the optimal economic hedge the firm would make under symmetric and public information.

Prior evaluations are frequently challenged and need to be revised. We propose that an important determinant of such revisions is the degree to which the challenge provides an opportunity to compare the target against a competitor. Whenever a challenge offers an opportunity, the information contained in the challene will carry a disproportionate weight in the revised judgments. We call this proposition the comparison-revision hypothesis.