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House Prices, Local Demand, and Retail Prices

March 2, 2015 Comments off

House Prices, Local Demand, and Retail Prices
Source: Social Science Research Network

We use detailed micro data to document a causal response of local retail prices to changes in house prices, with elasticities of 15%-20% across housing booms and busts. We provide evidence that our results are driven by changes in markups rather than by changes in local costs. We argue that this markup variation arises when increases in housing wealth reduce households’ demand elasticity, and firms raise markups in response. Consistent with this wealth channel, price effects are larger in zip codes with many homeowners, and non-existent in zip codes with mostly renters. In addition, shopping data confirms that house price changes have opposite effects on the price sensitivity of homeowners and renters. Our evidence has implications for monetary, labor and urban economics, and suggests a new source of markup variation in business cycle models.

All of This Has Happened Before and All of This Will Happen Again: Innovation in Copyright Licensing

February 25, 2015 Comments off

All of This Has Happened Before and All of This Will Happen Again: Innovation in Copyright Licensing
Source: Social Science Research Network

Claims that copyright licensing can substitute for fair use have a long history. This article focuses on a new cycle of the copyright licensing debate, which has brought revised arguments in favor of universal copyright licensing. First, the new arrangements offered by large copyright owners often purport to sanction the large-scale creation of derivative works, rather than mere reproductions, which were the focus of earlier blanket licensing efforts. Second, the new licenses are often free. Rather than demanding royalties as in the past, copyright owners just want a piece of the action — along with the right to claim that unlicensed uses are infringing. In a world where licenses are readily and cheaply available, the argument will go, it is unfair not to get one. This development, copyright owners hope, will combat increasingly fair use — favorable case law.

This article describes three key examples of recent innovations in licensing-like arrangements in the noncommercial or formerly noncommercial spheres — Getty Images’ new free embedding of millions of its photos, YouTube’s Content ID, and Amazon’s Kindle Worlds — and discusses how uses of works under these arrangements differ from their unlicensed alternatives in ways both subtle and profound. These differences change the nature of the communications and communities at issue, illustrating why licensing can never substitute for transformative fair use even when licenses are routinely available. Ultimately, as courts have already recognized, the mere desire of copyright owners to extract value from a market — especially when they desire to extract it from third parties rather than licensees — should not affect the scope of fair use.

Time Will Tell: Information in the Timing of Scheduled Earnings News

February 15, 2015 Comments off

Time Will Tell: Information in the Timing of Scheduled Earnings News
Source: Social Science Research Network

This study examines information in the schedule of future earnings announcements. Using a novel dataset of daily earnings calendar data, I show firm-initiated revisions in expected earnings announcement dates predict firms’ future earnings news and returns. Firms that significantly advance their announcement subsequently report better earnings news relative to firms that delay, consistent with firms strategically timing news. Advancers also outperform delayers by 260 basis points in the month after calendar revisions, where returns are concentrated during earnings announcements and mirror the nature of earnings news. Together, the results indicate investors fail to unravel information embedded in the timing of scheduled news releases.

A Diamond is Forever’ and Other Fairy Tales: The Relationship between Wedding Expenses and Marriage Duration

February 12, 2015 Comments off

A Diamond is Forever’ and Other Fairy Tales: The Relationship between Wedding Expenses and Marriage Duration
Source: Social Science Research Network

In this paper, we evaluate the association between wedding spending and marriage duration using data from a survey of over 3,000 ever-married persons in the United States. Controlling for a number of demographic and relationship characteristics, we find evidence that marriage duration is inversely associated with spending on the engagement ring and wedding ceremony.

Phishing in Smooth Waters: The State of Banking Certificates in the US

January 26, 2015 Comments off

Phishing in Smooth Waters: The State of Banking Certificates in the US
Source: Social Science Research Network

A critical component of the solution to online masquerade attacks, in which criminals create false web pages to obtain financial information, is the hierarchy of public key certificates. Masquerade attacks include phishing, pharming, and man-in-the-middle attacks. Public key certificates ideally authenticate the website to the person, before the person authenticates to the website. Public key certificates are typically issued by certificate authorities (CAs).

Banks are the most common target of phishing attacks, so we implemented an empirical study of certificates for depository institutions insured by the Federal Depository Insurance Corporation (FDIC) and compared them to general purpose, non-banking certificates. Our study of websites of FDIC-insured banks found that the current configuration fails to support website authentication. The most common failure is an absence of certificates, meaning that a false certificate would be the only valid-named certificate for that institution. Certificates with incorrect names, incorrectly structured certificates, and shared certificates all plague online banking. The vast majority of banks, especially smaller banks, apparently lack the expertise, support, or incentive to implement certificates correctly.

We document the current state of bank certificates. We compare these with general-purpose certificates (e.g., the top one million websites). We survey the various proposals for the certificate market writ large, including pinning and notaries. We identify how those fit and fail to fit the unique problem of banking certificates. We close with policy and technical recommendations to alter the use of certificates so that these can be a valid basis for consumer trust.

Do Compensation Consultants Enable Higher CEO Pay? New Evidence from Recent Disclosure Rule Changes

January 7, 2015 Comments off

Do Compensation Consultants Enable Higher CEO Pay? New Evidence from Recent Disclosure Rule Changes
Source: Social Science Research Network

In July 2009, the SEC announced additional disclosure rules requiring firms that purchase other services from their compensation consultants to disclose fees paid for both compensation consulting and other services. This exogenous requirement dramatically increased both the turnover of compensation consultants and the number of specialist firms in the industry solely providing executive compensation consulting services. After the rule change, client firms that switched to specialist consultants paid their chief executive officers (CEOs) 9.7% more in median total compensation than a matched sample of firms that remained with multi-service consultants. Compensation consultants retained solely by the board are associated with 12.9% lower median pay levels than a propensity-score matched sample of firms with additional management-retained consultants. Finally, CEOs at firms that start hiring compensation consultants experience a 7.5% increase in median pay relative to a propensity-score matched sample. Overall, our study finds strong empirical evidence for the hiring of compensation consultants as a justification device for higher executive pay.

‘Competitiveness’ Has Nothing to Do With It

January 7, 2015 Comments off

‘Competitiveness’ Has Nothing to Do With It
Source: Social Science Research Network

The recent wave of corporate tax inversions has triggered interest in what motivates these tax-driven transactions now. Corporate executives have argued that inversions are explained by an “anti-competitive” U.S. tax environment, as evidenced by the federal corporate tax statutory rate, which is high by international standards, and by its “worldwide” tax base. This paper explains why this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.’s former vice-chairman) as a case study.

The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational firms’ increasingly desperate efforts to find a use for their stockpiles of offshore cash (now totaling around $1 trillion), and by a desire to “strip” income from the U.S. domestic tax base through intragroup interest payments to a new parent company located in a lower-taxed foreign jurisdiction. These motives play out against a backdrop of corporate existential despair over the political prospects for tax reform, or for a second “repatriation tax holiday” of the sort offered by Congress in 2004.

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