Economics Insights @ CBS

We use firm-level panel data to explore the extent to which fixed investment responds to tax reforms in 14 OECD countries. Previous studies have often found that investment does not respond to changes in the marginal cost of investment. We identify some of the factors responsible for this finding, and employ an estimation procedure that sidesteps the most important of them. In so doing, we find evidence of statistically and economically significant investment responses to tax changes in 12 of the 14 countries.

This paper studies information system design in a model of double moral hazard in which there is both a decision problem and a control problem. If either problem is considered in isolation, an information system that provides more public information is preferred. However, an information system that provides less public information can, in fact, be desirable because of an interaction between the two problems. The benefit of choosing an information system that provides less information is that it serves as a substitute for commitment for the principal.

This article suggests that the introduction of bank branching restrictions and federal deposit insurance in the United States likely was motivated by political considerations. Specifically, we argue that these restrictions were instituted for the benefit of the small unit banks that were unable to compete effectively with large, multiunit banks. We analyze this "political hypothesis" in two steps.

This paper presents a stochastic multidimensional unfolding (MDU) procedure to spatially represent individual differences in phased or sequential decision processes. The specific application or scenario to be discussed involves the area of consumer psychology where consumers form judgments sequentially in their awareness, consideration, and choice set compositions in a phased or sequential manner as more information about the alternative brands in a designated product/service class are collected.