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Full-Text Articles in Social and Behavioral Sciences
Geography, Trade And Power-Law Phenomena, Pao-Li Chang, Wen-Tai Hsu
Geography, Trade And Power-Law Phenomena, Pao-Li Chang, Wen-Tai Hsu
Research Collection School Of Economics
This article reviews interrelated power-law phenomena in geography and trade. Given the empirical evidence on the gravity equation in trade flows across countries and regions, its theoretical underpinnings are reviewed. The gravity equation amounts to saying that trade flows follow a power law in distance (or geographic barriers). It is concluded that in the environment with firm heterogeneity, the power law in firm size is the key condition for the gravity equation to arise. A distribution is said to follow a power law if its tail probability follows a power function in the distribution’s right tail. The second part of …
The Case Of The Errant Executive: Management, Control And Firm Size In Corporate Cheating, Brishti Guha
The Case Of The Errant Executive: Management, Control And Firm Size In Corporate Cheating, Brishti Guha
Research Collection School Of Economics
Firm insiders – a manager and a board – face moral hazard in relation to their outside shareholders in a repeated game with asymmetric information and stochastic market outcomes. The manager determines whether or not outsiders are cheated; the board, whose objectives differ from those of outside shareholders, attempts to control the manager through compensation contracts and dismissal threats Since compensation determines the manager’s incentive to cheat, firms competing for outside capital publicly announce their managerial contracts. However, secret renegotiation between firm and manager is still possible: so outsiders guard against being cheated by limiting their total stake in any …
The Auditor And The Firm: A Simple Model Of Corporate Cheating And Intermediation, Brishti Guha
The Auditor And The Firm: A Simple Model Of Corporate Cheating And Intermediation, Brishti Guha
Research Collection School Of Economics
We apply a game-theoretic model to the analysis of the recent spate of corporate scandals in which firms have cheated their investors, often with the aid of external auditors. We characterize the different types of equilibria that obtain for different parameter ranges in an auditor’s absence (the parameters we consider being early signal accuracy – a measure of transparency – and withdrawal costs – a measure of the liquidity of investments). We also analyze whether and under what conditions the presence of an informed auditor could lead to an improvement in the sense of honest behavior replacing cheating as the …