Unions and the Welfare Impact of Foreign Direct Investment — A Wisdom Extension

Abstract. This paper extends the recent literature, e.g. Leahy and Montagna (Economic Journal 110: 80–92, 2000), in relation to the link between unionization, inward foreign direct investment (FDI) and country welfare in an oligopoly market structure. It is shown that the common results, that unions may reduce welfare under FDI while multinational enterprises (MNEs) will strictly trade off union wages at each location, are generally driven by the assumption relating to the scope of the bargaining with the union, namely the ‘right to manage’ (RTM). In particular, our extension to efficient bargaining (EB) demonstrates that union power may increase welfare in the presence of FDI, while the MNEs’ choice between FDI and exports will include profit‐sharing arbitrage with unions, in addition to the usual wage comparison considerations.     

A Note on Model-Based Stratification

A slight improvement on the stratification methodology in Godfrey et al. (1984) is proposed and an example is advanced to demonstrate its usefulness.     

A statistical uncertainty principle for estimating the time of a discrete shift in the mean of a continuous time random process

The purpose of this article is to present a statistical uncertainty principle that can be used when localizing a single change in the mean of a band-limited stationary random process. The statistical model investigated is a continuous time process that experiences a shift in its mean. This continuous time process is presumed to be sampled using an ideal low-pass filter. The least squares estimate of the location of the change in mean is asymptotically Gaussian. The standard deviation of the least squares estimate of the location of the change-point provides a physical limit to the accuracy of the estimate of the time of the mean shift which cannot be bettered.     

A Decision-Theoretic Valuation of Information in Sealed-Bid Auctions for Items of Known Value

This paper considers the question of how much time and effort should be spent in preparing a bid for a single item of known value sold at a first-price sealed-bid auction. A decision-theoretic approach to this bid decision summarizes the decision maker's knowledge of the competitive environment through his or her subjective probability distribution of the highest competing bid. Research activities such as collecting and analyzing bid histories are efforts to obtain additional information that reduces the uncertainty in the highest competing bid. The decision-theoretic concepts of expected value of perfect and imperfect information are used to place an economic value on such research activities. The results presented allow the decision maker to quantify the expected value of imperfect information when the uncertainty is normally distributed. The results show that additional research is most valuable prior to auctions the bidder expects to win.     

Predicting the Winner's Curse

If quantity uncertainty exists in a first price auction that specifies a fixed bid, a participant must answer two questions when evaluating a candidate bid: “What are my chances of winning?” and “What is the effect of the winner's curse on my quantity estimate?” The winner's curse is the tendency of the winner of a first-price sealed-bid auction to be the bidder that most overvalues the items being offered. When value uncertainty is due to quantity uncertainty, the winner's curse implies that the bidder that most overestimates the quantity tends to win. Thus, if there is quantity uncertainty, a participant must adjust its bid for this tendency to overestimate quantities. This paper presents an empirical method to answer the above questions by estimating a predictive distribution of the highest competing bid and the quantity bias caused by the winner's curse. The method is developed for timber auctions but is general to auctions where a fixed bid is called for and there is uncertainty in the mix and quantities of items being offered. An example that uses data from timber auctions is used to demonstrate the method.     

ON THE COST OF NEW ISSUES OF COMMON STOCK: AN AMENDMENT TO THE CONSTANT GROWTH MODEL

Expansion decisions by corporate managements are importantly influenced by their perceptions of the firm's cost of capital and especially the cost of common equity. Their decision making is then influenced by the common perception that new issues of common stock are more costly than retained earnings because of the flotation costs inherent in new issues. Thus a rate of expansion that requires new issues is downgraded in decision making. In this paper the authors show that in actuality new issues of common equity may be less costly than retained earnings. Thus different decision-making implications are clearly involved.