Archive
The 4 Percent Rule is Not Safe in a Low-Yield World
The 4 Percent Rule is Not Safe in a Low-Yield World
Source: Social Science Research Network
The safety of a 4% initial withdrawal strategy depends on asset return assumptions. Using historical averages to guide simulations for failure rates for retirees spending an inflation-adjusted 4% of retirement date assets over 30 years results in an estimated failure rate of about 6%. This modest projected failure rate rises sharply if real returns decline. As of January 2013, intermediate-term real interest rates are about 4% less than their historical average. Calibrating bond returns to the January 2013 real yields offered on 5-year TIPS, while maintaining the historical equity premium, causes the projected failure rate for retirement account withdrawals to jump to 57%. The 4% rule cannot be treated as a safe initial withdrawal rate in today’s low interest rate environment. Some planners may wish to assume that today’s low interest rates are an aberration and that higher real interest rates will return in the medium-term horizon. Although there is little evidence to support this assumption, we estimate how a reversion to historical real yields will impact failure rates. Because of sequence of returns risk, portfolio withdrawals can cause the events in early retirement to have a disproportionate effect on the sustainability of an income strategy. We simulate failure rates if today’s bond rates return to their historical average after either 5 or 10 years and find that failure rates are much higher (18% and 32%, respectively for a 50% stock allocation) than many retirees may be willing to accept. The success of the 4% rule in the U.S. may be an historical anomaly, and clients may wish to consider their retirement income strategies more broadly than relying solely on systematic withdrawals from a volatile portfolio.
The Dangers of Surveillance
Source: Harvard Law Review (via SSRN)
From the Fourth Amendment to George Orwell’s Nineteen Eighty-Four, our law and literature are full of warnings about state scrutiny of our lives. These warnings are commonplace, but they are rarely very specific. Other than the vague threat of an Orwellian dystopia, as a society we don’t really know why surveillance is bad, and why we should be wary of it. To the extent the answer has something to do with “privacy,” we lack an understanding of what “privacy” means in this context, and why it matters. Developments in government and corporate practices, however, have made this problem more urgent. Although we have laws that protect us against government surveillance, secret government programs cannot be challenged until they are discovered. And even when they are, courts frequently dismiss challenges to such programs for lack of standing, under the theory that mere surveillance creates no tangible harms, as the Supreme Court did recently in the case of Clapper v. Amnesty International. We need a better account of the dangers of surveillance.
This article offers such an account. Drawing on law, history, literature, and the work of scholars in the emerging interdisciplinary field of “surveillance studies,” I explain what those harms are and why they matter. At the level of theory, I explain when surveillance is particularly dangerous, and when it is not. Surveillance is harmful because it can chill the exercise of our civil liberties, especially our intellectual privacy. It is also gives the watcher power over the watched, creating the the risk of a variety of other harms, such as discrimination, coercion, and the threat of selective enforcement, where critics of the government can be prosecuted or blackmailed for wrongdoing unrelated to the purpose of the surveillance.
At a practical level, I propose a set of four principles that should guide the future development of surveillance law, allowing for a more appropriate balance between the costs and benefits of government surveillance. First, we must recognize that surveillance transcends the public-private divide. Even if we are ultimately more concerned with government surveillance, any solution must grapple with the complex relationships between government and corporate watchers. Second, we must recognize that secret surveillance is illegitimate, and prohibit the creation of any domestic surveillance programs whose existence is secret. Third, we should recognize that total surveillance is illegitimate and reject the idea that it is acceptable for the government to record all Internet activity without authorization. Fourth, we must recognize that surveillance is harmful. Surveillance menaces intellectual privacy and increases the risk of blackmail, coercion, and discrimination; accordingly, we must recognize surveillance as a harm in constitutional standing doctrine.
Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales
Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales
Source: Social Science Research Network
The growth of Internet-based piracy has led to a wide-ranging debate over how copyright policy should be enforced in the digital era. While some enforcement approaches involve policies designed to deter consumers from filesharing though incentives or penalties, other approaches target the supply of piracy by shutting down Internet sites that serve as major conduits for pirated content. In this paper we analyze how one such anti-piracy intervention, the shutdown of the popular Megaupload site, affected the digital sales of movies for two major studios.
Simply examining changes in sales after the shutdown would produce an inaccurate measure of its actual effect as sales are changing over time for a variety of reasons. Instead we exploit cross-country variation in pre-shutdown usage of Megaupload as a measure of treatment intensity. Controlling for country-specific trends and the Christmas holiday, we find no statistical relationship between Megaupload penetration and changes in digital sales prior to the shutdown. However, we find a statistically significant positive relationship between a country’s Megaupload penetration and its sales change after the shutdown, such that for each additional 1% pre-shutdown Megaupload penetration, the post-shutdown sales unit change was 2.5% to 3.8% higher, suggesting that these increases are a causal effect of the shutdown.
Aggregating these increases, our analysis across 12 countries suggests that, in the 18 weeks following the shutdown, digital revenues for these two studio’s movies were 6-10% higher than they would have been if not for the shutdown. Thus our findings show that the closing of a major online piracy site can increase digital media sales, and by extension we provide evidence that Internet movie piracy displaces digital film sales.
Ham Sandwich Nation: Due Process When Everything is a Crime
Ham Sandwich Nation: Due Process When Everything is a Crime
Source: Social Science Research Network (SSRN)
Though extensive due process protections apply to the investigation of crimes, and to criminal trials, perhaps the most important part of the criminal process — the decision whether to charge a defendant, and with what — is almost entirely discretionary. Given the plethora of criminal laws and regulations in today’s society, this due process gap allows prosecutors to charge almost anyone they take a deep interest in. This Essay discusses the problem in the context of recent prosecutorial controversies involving the cases of Aaron Swartz and David Gregory, and offers some suggested remedies, along with a call for further discussion.
What do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives
What do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives
Source: Social Science Research Network
We ask whether mutual funds’ flows reflect the incentives of the brokers intermediating them. The incentives we address are those revealed in statutory filings: the brokers’ shares of sales loads and other revenue, and their affiliation with the fund family. We find significant effects of these payments to brokers on funds’ inflows, particularly when the brokers are not affiliated. Tracking these investments forward, we find load sharing, but not revenue sharing, to predict poor performance, consistent with the different incentives these payments impart. We identify one benefit of captive brokerage, which is the recapture of redemptions elsewhere in the family.
See: Broker fees from mutual funds affect advice; predict worse performance, new study says (EurekAlert!)
Top Marginal Effective Tax Rates by State and by Source of Income, 2012 Tax Law vs. 2013 Scheduled Tax Law
Top Marginal Effective Tax Rates by State and by Source of Income, 2012 Tax Law vs. 2013 Scheduled Tax Law
Source: Social Science Research Network
This paper compares state-by-state estimates of the top marginal effective tax rates (METRs) on wages, interest, dividends, capital gains, and business income for tax year 2012 to the rates scheduled for 2013 under scheduled law. Scheduled tax law for 2013 assumes the expiration of the 2001 and 2003 tax cuts and the new PPACA taxes. Overall, the average top METR on wage income is scheduled to increase by approximately six percentage points (41.8 percent to 47.8 perent), while taxes on dividends would increase the greatest (19.0 percent to 47.9 percent). The top METRs on wages, dividends, interest, and partnership/sole proprietor income would exceed 50 percent in California, Hawaii, and New York City.
Adapting to Climate Change: The Remarkable Decline in the U.S. Temperature-Mortality Relationship Over the 20th Century
Adapting to Climate Change: The Remarkable Decline in the U.S. Temperature-Mortality Relationship Over the 20th Century
Source: Social Science Research Network (SSrn)
Adaptation is the only strategy that is guaranteed to be part of the world’s climate strategy. Using the most comprehensive set of data files ever compiled on mortality and its determinants over the course of the 20th century, this paper makes two primary discoveries. First, we find that the mortality effect of an extremely hot day declined by about 80% between 1900-1959 and 1960-2004. As a consequence, days with temperatures exceeding 90°F were responsible for about 600 premature fatalities annually in the 1960-2004 period, compared to the approximately 3,600 premature fatalities that would have occurred if the temperature-mortality relationship from before 1960 still prevailed. Second, the adoption of residential air conditioning (AC) explains essentially the entire decline in the temperature-mortality relationship. In contrast, increased access to electricity and health care seem not to affect mortality on extremely hot days. Residential AC appears to be both the most promising technology to help poor countries mitigate the temperature related mortality impacts of climate change and, because fossil fuels are the least expensive source of energy, a technology whose proliferation will speed up the rate of climate change.
The International Politics of IFRS Harmonization
The International Politics of IFRS Harmonization
Source: Social Science Research Network
The globalization of accounting standards as seen through the proliferation of IFRS worldwide is one of the most important developments in corporate governance over the last decade. I offer an analysis of some international political dynamics of countries’ IFRS harmonization decisions. The analysis is based on field studies in three jurisdictions: Canada, China, and India. Across these jurisdictions, I first describe unique elements of domestic political economies that are shaping IFRS policies. Then, I inductively isolate two principal dimensions that can be used to characterize the jurisdictions’ IFRS responses: proximity to existing political powers at the IASB; and own potential political power at the IASB. Based on how countries are classified along these dimensions, I offer predictions, ceteris paribus, on countries’ IFRS harmonization strategies. The analysis and framework in this paper can help broaden the understanding of accounting’s globalization.
The Eurozone Debt Crisis — The Options Now
The Eurozone Debt Crisis — The Options Now
Source: Social Science Research Network
The Eurozone debt crisis is entering its third year. The original objective of the official sector’s response to the crisis — containment — has failed. All of the countries of peripheral Europe are now in play; three of them (Greece, Ireland and Portugal) operate under full official sector bailout programs.
The prospect of the crisis engulfing the larger peripheral countries, Spain and Italy, has sparked a new round of official sector containment measures. These will involve active intervention by official sector players such as the European Central Bank in order to preserve market access for the affected countries.
This paper surveys the options now facing the sovereign debtors and their official sector sponsors. It concludes that there are no painless or riskless options. In the end, the question may come down to this — to what extent will the official sector sponsors of peripheral Europe be prepared to take on their own shoulders (and off of the shoulders of private sector lenders) a significant portion of the debt stocks of these countries during this period of fiscal adjustment?
A Framework for Research on Corporate Accountability Reporting
A Framework for Research on Corporate Accountability Reporting
Source: Social Science Research Network
This paper provides an accounting-based conceptual framing of the phenomenon of corporate accountability reporting. Such reporting is seen as arising from a delegator’s (e.g., a citizenry) demand to hold a delegate (e.g., shareholders) to account. When effective, corporate accountability reporting can internalize certain externalities into firms’ resource-allocation decisions, although doing so will not always serve shareholders’ interests. I leverage the positive accounting literature’s current understanding of properties of financial reports to develop three hypotheses on corporate accountability reporting. I argue that an accountability reporting system is likely to be more useful to a delegator if it: (1) mitigates information advantages across delegates and delegators; (2) reports both stocks and flows in the measures of account; and (3) has a mutually agreeable due process to match across periods the actions of delegates and the outcomes of those actions. I show how the successive incidence of these properties in observed corporate accountability reports can be used to determine whether and how those reports create or destroy value for shareholders and other constituencies.
Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment
Duration Dependence and Labor Market Conditions: Theory and Evidence from a Field Experiment
Source: Social Science Research Network
This paper studies the role of employer behavior in generating "negative duration dependence" — the adverse effect of a longer unemployment spell — by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker’s unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions, and find that duration dependence is stronger when the labor market is tighter. We develop a theoretical framework that shows how the sign of this interaction effect can be used to discern among leading models of duration dependence based on employer screening, employer ranking, and human capital depreciation. Our results suggest that employer screening plays an important role in generating duration dependence; employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets.
Heterogeneity in Discrimination?: A Field Experiment
Heterogeneity in Discrimination?: A Field Experiment
Source: Social Science Research Network
We provide evidence from the field that levels of discrimination are heterogeneous across contexts in which we might expect to observe bias. We explore how discrimination varies in its extent and source through an audit study including over 6,500 professors at top U.S. universities drawn from 89 disciplines and 258 institutions. Faculty in our field experiment received meeting requests from fictional prospective doctoral students who were randomly assigned identity-signaling names (Caucasian, Black, Hispanic, Indian, Chinese; male, female). Faculty response rates indicate that discrimination against women and minorities is both prevalent and unevenly distributed in academia. Discrimination varies meaningfully by discipline and is more extreme in higher paying disciplines and at private institutions. These findings raise important questions for future research about how and why pay and institutional characteristics may relate to the manifestation of bias. They also suggest that past audit studies may have underestimated the prevalence of discrimination in the United States. Finally, our documentation of heterogeneity in discrimination suggests where targeted efforts to reduce discrimination in academia are most needed and highlights that similar research may help identify areas in other industries where efforts to reduce bias should focus.
Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program
Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program
Source: Social Science Research Network
The main rationale for policy intervention in debt renegotiation is to enhance such activity when foreclosures are perceived to be inefficiently high. We examine the ability of the government to influence debt renegotiation by empirically evaluating the effects of the 2009 Home Affordable Modification Program that provided intermediaries (servicers) with sizeable financial incentives to renegotiate mortgages. A difference-in-difference strategy that exploits variation in program eligibility criteria reveals that the program generated an increase in the intensity of renegotiations while adversely affecting effectiveness of renegotiations performed outside the program. Renegotiations induced by the program resulted in a modest reduction in rate of foreclosures but did not alter the rate of house price decline, durable consumption, or employment in regions with higher exposure to the program. The overall impact of the program will be substantially limited since it will induce renegotiations that will reach just one-third of its targeted 3 to 4 million indebted households. This shortfall is in large part due to low renegotiation intensity of a few large servicers that responded at half the rate than others. The muted response of these servicers cannot be accounted by differences in contract, borrower, or regional characteristics of mortgages across servicers. Instead, their low renegotiation activity — which is also observed before the program — reflects servicer specific factors that appear to be related to their preexisting organizational capabilities. Our findings reveal that the ability of government to quickly induce changes in behavior of large intermediaries through financial incentives is quite limited, underscoring significant barriers to the effectiveness of such polices.
One In Seven: Ranking Youth Disconnection in the 25 Largest Metro Areas
One In Seven: Ranking Youth Disconnection in the 25 Largest Metro Areas
Source: Social Science Research Network (Measure of America)
An astonishing one in every seven Americans ages 16 to 24 is neither working nor in school—5.8 million young people in all. As their peers lay the foundation for a productive, fulfilling adulthood, these disconnected youth find themselves adrift at society’s margins, unmoored from the structures that confer knowledge, skills, identity, and purpose.
The cost is high for affected individuals—and for society as a whole. Lack of attachment to the anchor institutions of school or work at this stage of life can leave scars that last a lifetime, affecting everything from earnings and financial independence to physical and mental health and even marital prospects. And last year alone, youth disconnection cost taxpayers $93.7 billion in government support and lost tax revenue.
This brief ranks the country’s 25 largest metropolitan areas as well as the nation’s largest racial and ethnic groups in terms of youth disconnection. Key findings include the following:
- Big gaps separate major metro areas; in bottom-ranked Phoenix, 19 percent of young people are disconnected from the worlds of work and school, whereas in Boston, which tops the chart, only about 9 percent are.
- African American young people have the highest rate of youth disconnection, 22.5 percent nationally. In Pittsburgh, Seattle, Detroit, and Phoenix, more than one in four African American young people are disconnected.
- Young men are slightly more likely to be disconnected than young women, a reversal of the situation found in decades past. The situation varies by race and ethnicity, however. The gender gap is largest among African Americans; nationally, 26 percent of African American male youth are disconnected, compared to 19 percent of their female counterparts.
- Youth disconnection mirrors adult disconnection: household poverty rates and the employment and educational status of adults in a community are strongly associated with youth disconnection.
- Where a young person lives is highly predictive of his or her likelihood of disconnection. The findings break down youth disconnection by neighborhoods within cities. The disparities between wealthy and poor communities are striking. For example, in New York, disconnection rates range from 3.7 percent in parts of Long Island to 35.6 percent in parts of the South Bronx.
The report concludes with a set of recommendations for preventing youth disconnection, including moving beyond the “college-for-all” mantra to provide meaningful support and guidance both to young people aiming for a four-year bachelor’s degree and to those whose interests and career aspirations would be better served by relevant, high-quality career and technical education certificates and associate’s degrees.
The Effect of Law School Marketing Materials on U.S. News and World Report Rankings
The Effect of Law School Marketing Materials on U.S. News and World Report Rankings
Source: Social Science Research Network
In the last few years, law schools have inundated each other with glossy brochures, postcards, magazines, and other marketing materials in an attempt to influence their “peer assessment scores” in the annual U.S. News and World Report rankings. This article describes a study that attempted to determine whether law schools’ print marketing efforts to one another have an impact on their U.S. News rankings data. From June to December 2011, the author’s school collected and coded all of the materials it had received from schools, including materials that it itself had sent to others. In total, 427 unique pieces of marketing were received from 125 of the 191 schools that were the subjects of this study. They varied considerably in size, format, content, and audience. A number of statistical tests were conducted to compare a school’s marketing efforts with its overall rank, overall score, peer assessment score, and tier, along with any change in those variables from the 2011 rankings to the 2012 ones. The results showed that there was some correlation between a school’s marketing efforts and its U.S. News data. Schools that sent marketing materials had, on average, higher tier placement and peer assessment scores; however, there was not a significant change in year-to-year rankings variables. The number of pieces a school sent during the study period was, for the most part, not significant. On the other hand, the number of pages in its materials was correlated with a number of U.S. News variables. Schools that sent longer, magazine-type publications geared towards a specific audience had higher U.S. News scores and also showed a slight improvement in their overall score between the two years of rankings data in this study. However, it is possible that a co-variate, such as institutional financial resources, may be causing the results. Additional study is needed to determine whether marketing materials have a longer-term effect on U.S. News ranking variables that cannot be captured in a one year study.
National Federation of Independent Business v. Sebelius: Five Takes
National Federation of Independent Business v. Sebelius: Five Takes
Source: Social Science Research Network
In this article, following our now-famous “Five Takes” format, we will look at some possible meanings and implications of the Supreme Court’s decision.
We first consider possible analogies between NFIB and two other famous cases whose opinions are held out as deftly straddling the line between principle and prudence: Marbury v. Madison and the Bakke case (Takes One and Two). Takes Three and Four examine the opinion though the lens of constitutional theory. We consider whether the decision, Chief Justice Roberts’s opinion especially, served what Charles Black called the Court’s “legitimating” function, quelling doubts about the Act’s constitutionality and, thus, its legitimacy. We further consider whether, in ultimately upholding the Act despite its relative unpopularity, Chief Justice Roberts’s opinion could be seen as an example of judicial restraint a la James Bradley Thayer. Finally, in Take Five, we consider that the peculiar construction of the opinion handed the Administration a somewhat Pyrrhic victory while laying the foundation for robust judicially-enforced limits on congressional power. A brief conclusion follows.
Why Has Regional Income Convergence in the U.S. Stopped?
Why Has Regional Income Convergence in the U.S. Stopped?
Source: Social Science Research Network
The past thirty years have seen a dramatic decrease in the rate of income convergence across states and in population flows to wealthy places. We develop a model where migration drives convergence and its disappearance. The model predicts that increases in housing prices in rich areas generate (1) a divergence in the skill-specific returns to productive places, (2) a redirection of low-skilled migration, (3) diminished human capital convergence, and (4) continued convergence among places with unconstrained housing supply. Using a new panel measure of housing-supply regulations, we confirm these predictions and the role of housing in the end of convergence.
Defending Junk-Debt-Buyer Lawsuits
Defending Junk-Debt-Buyer Lawsuits
Source: Social Science Research Network
Junk debt buyer lawsuits have overwhelmed the courts all across the United States. These lawsuits wreak havoc on consumers and their families. Often overlooked is the fact that judgments against consumers which are based on junk debt are part of a zero sum game, where every bogus judgment deprives a legitimate creditor of the chance to get paid from scarce resources. Thus, the legitimate creditor to whom money is owed is materially harmed by the junk debt buyer who extracts money based on an illegitimate claim, or who causes someone to declare bankruptcy. Providing representation to this otherwise unrepresented population will not only help individual consumers. It could improve the entire U.S. economy, by preserving precious resources to pay what is legitimately owed, and avoiding paying for what is not. This article surveys the landscape of the junk debt buyer industry and provides advice for consumer advocates engaged in the battle against unscrupulous junk debt buyers.
Top Ten Myths of Medicare
Top Ten Myths of Medicare
Source: Social Science Research Network
In the context of changing demographics, the increasing cost of health care services, and continuing federal budgetary pressures, Medicare has become one of the most controversial federal programs. To facilitate an informed debate about the future of this important public initiative, this article examines and debunks the following ten myths surrounding Medicare: (1) there is one Medicare program, (2) Medicare is going bankrupt, (3) Medicare is government health care, (4) Medicare covers all medical cost for its beneficiaries, (5) Medicare pays for long-term care expenses, (6) the program is immune to budgetary reduction, (7) it wastes much of its money on futile care, (8) Medicare is less efficient than private health insurance, (9) Medicare is not means-tested, and (10) increased longevity will sink Medicare.
Why Do Good People Sometimes Do Bad Things?: 52 Reflections on Ethics at Work
Why Do Good People Sometimes Do Bad Things?: 52 Reflections on Ethics at Work
Source: Social Science Research Network
Why do good people sometimes do bad things in their work? This important question for the management of the ethics and integrity of an organization is addressed in this book. Drawing on social-psychological experiments, a model of 7 cultural factors is presented.
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