Carl R. Gwin

Product Attributes Model: A Tool for Evaluating Brand Positioning

A brand’s positioning is designed to develop a sustainable competitive advantage on product attribute(s) in the consumer’s mind. Perceptual maps are commonly used to evaluate a brand’s positioning. Another tool from the economics literature, the product attributes model (based on Lancaster 1966,1979), utilizes three components: attribute ratings, budget constraint, and indifference curves. The key advantage of this analysis over perceptual maps is the ability to incorporate the impact of price into assessment of the brand’s positioning. This paper discusses how the product attributes model helps managers understand the strategic implications of positioning decisions and provides an example of its use.

Religious Freedom and the Unintended Consequences of State Religion

We use a cross-section of 59 countries to examine the impact of state religion and of constitutional protection of religion on the degree of religiosity within a country. Our measure of religiosity is the percentage of the population who attend religious services at least once a week. We find that both establishment of a state religion and constitutional protection of religion have significant (and opposing) effects. The existence of a state religion reduces attendance by 14.6–16.7% of the total population, whereas each decade of constitutional protection increases attendance by approximately 1.2% of the population. We also find that other measures of religious regulation have significant negative effects on attendance. Ironically, the motive behind establishment of a particular state religion usually is to strengthen that religion, but the effects are ultimately to undermine the vitality of the established religion.

Religion, Corruption, and the Rule of Law

Existing research has found that economic growth is higher in countries where (1) certain religious beliefs are stronger and (2) the rule of law is stronger and corruption is lower. This paper examines whether religion is correlated with the rule of law and the level of corruption, thereby providing a partial explanation of the correlation between religion and economic growth. We find that the strength of the rule of law and the level of corruption are both associated with a country’s religious heritage, as measured by the country’s largest religious group in 1900. In addition, we find that our results sometimes differ when we control for variables where we lack data for all countries in the sample, but that these differences are attributable to changes in sample composition rather than inclusion of the control variables. Our results suggest that researchers should take great care to distinguish between the effects of adding a control variable and the resulting sample composition effects when doing cross-country analysis.

Why do real estate appraisals nearly always equal offer price

Are real estate appraisals based on fundamentals that determine the value of the real estate or on offer price? Does this question really matter? In a game of moral hazard with hidden information, we examine an appraiser’s incentives in conducting an appraisal. We find that a moral hazard problem can arise if the mortgagee rewards the appraiser with future business for successful appraisals. An appraiser may be willing to overstate the value of a property if the lender wants him to do so. Additionally, we define the conditions under which the moral hazard problem actually makes all of the players better or no worse off. We argue that the subjective judgment of an appraiser may be Pareto improving. Thus, excessive regulation of the appraisal industry or finer tuned quantitative models that constrain subjective judgment may actually reduce the gains of real estate trade.

The Role of Search Costs in Determining the Relationship between Inflation and Profit Margins

Previous empirical studies have found a negative relationship between inflation and industry profit margins. Recent theoretical findings, however, suggest that buyer search costs can significantly impact this relationship. We use an actual measure of search cost that varies across wholesale industries to estimate the impact of these costs on the relationship between inflation and markups. Using firm-level data from 57 industries, we show that margins increase during inflation if search costs become sufficiently high. Our findings reconcile the theoretical and empirical literatures on this topic.

Auctions and Land Values: An Experimental Analysis

Although urban land development is a well-researched area, there has been inadequate research on the allocation mechanism for land. This paper offers a new perspective on the effects of the auction mechanism on land values. By appealing to an experimental setting to examine the bidding behaviour of developers in repeated first-price sealed bid (FPSB) auctions where resolution of price uncertainty (development revenue) is deferred, it is shown that overbidding is pervasive. Participants consistently shave expected profit margins in order to secure land for development. The actual profit margins reported in all experiments are significantly lower than the suggested benchmark made known before the experiments. Consequently, participants tend to experience smaller ex post profits relative to ex ante expectations. However, we find that repeated bidding does mitigate overbidding to some extent, as evidenced by lower differences in the winning bid to the second-highest bid. Convergence in the range of bids occurs over time, but only significantly so when public information in terms of an expectation of the future property price, is provided. This study offers interesting policy implications for urban land development.

Do we really understand homeownership rates? An international study

Purpose - This paper attempts to fill two gaps in the homeownership literature identified by Dietz and Haurin: homeownership in less developed countries and the effects of race, ethnicity and income on tenure choice. Design/methodology/approach - United Nations data from 1993 and 1998 are used to offer a cross-country analysis of the determinants of homeownership rates. Consistent with the previous literature, this study confirms that the price-to-rent ratio is an important factor in tenure choice and increases in income are associated with increases in the percentage of consumers who choose to own. However, these relationships seem to hold generally only for higher income developed countries. Findings - In contrast to the previous literature that finds race and ethnicity account for a significant portion of the differences in US homeownership rates, this study finds no evidence that these determinants account for differences across countries. The authors investigate the rule of law and find it is closely correlated with income measures which may indicate that countries with stronger laws encourage higher homeownership rates. Finally, capitalist/(formerly) communist regime differences do not appear to explain cross country differences in homeownership rates. Research limitations/implications - This research is limited by the scope and quality of the UN data. Practical implications - The paper offers insights from the international evidence for the potential of selected policies to increase domestic homeownership rates and identifies several avenues for future international homeownership research. Originality/value - This paper provides an initial empirical analysis on international homeownership in an attempt to fill gaps in the homeownership literature.

Religion and the Emergence of the Rule of Law

From our comfortable and relatively wealthy perches in the 21st Century, many of us in developed nations ask why so many nations are poor? Surrounded by wealth, we wonder how widespread extreme poverty can persist in so many places. We view the poor countries as the exceptional cases, and our own wealthier countries as the norm. But this perspective is rooted in our own circumstances and ignores the grand sweep of history. In the many millennia since homo sapiens first emerged, humankind’s basic conditions have been characterized by subsistence-level living with short average life-spans. Only in the last few centuries has humanity begun to experience the widespread accumulation of wealth typical in a modern developed economy, and with this economic prosperity has come improvement in quality of life in many measurable ways. So, the interesting question to ask is not why are some countries poor?, because poverty has been the norm for humanity for most of its existence. The interesting question is why did any country ever get rich? Economists and economic historians have proposed a multifaceted array of answers to this question. Any valid answer to why did any country get rich? must at least begin with the nations of Western Europe, because that is where the modern wealth-generating economy first got its start. In this chapter, we examine the role played by the Medieval Roman Catholic Church in creating the institutions that generated the rule of law in Western Europe, planting the seeds that led to modern economic growth. We consider “rule of law” to mean that a body of rules exists that is defined and enforced well enough to constrain arbitrary governmental actions, and that government itself has well-defined and enforced civil and criminal rules to govern social interactions. The chapter (which is a preliminary sketch of a long-term research project) begins by observing that the Roman Catholic Church was one of the primary producers of wealth in the medieval period (from 1000 to 1500 CE). The Church’s wealth flowed in substantial part from monastic estates, whose heightened productivity likely resulted from cooperative behavior encouraged by the shared beliefs and social norms within the monastery. In the tenth century CE, secular authorities appropriated a large amount of monastic land and other Church properties. For this and other reasons, the Church embarked on a reform campaign in the latter part of the 11th century that asserted the power of the Pope over both the Church and the secular rulers. The papal reform of the 11th century led to the emergence of ecclesiastical courts as the creators and interpreters of the Church’s own canon law, and ecclesiastical courts were able to protect the Church and its holdings from appropriation by political rulers. Many canon law doctrines that shielded the Church from an arbitrary state ultimately made their way into modern Western law, providing protection of property and contract rights to individuals vis-à-vis the state in ways still felt today. In contrast to Western Europe, the religious authorities in other parts of the world lacked the power and authority of the Medieval Church relative to secular rulers, so that the

Price and Wage Stickiness, Inflation and Profits

This paper investigates the relationship between firm mark‐ups and inflation. In sectors of the economy with industries characterized by flexible prices and sticky wages, mark‐ups should respond positively to inflation. Industry mark‐ups in sectors with both flexible prices and flexible wages theoretically may rise or fall in response to an increase in the price level. Mark‐ups of industries in sectors of the economy in which prices are sticky should respond negatively to inflation, with an absolutely larger negative response occurring in sticky‐price industries with flexible wages. Empirical analysis of US industries provides support for nearly all of these theoretical predictions.

Search costs, sticky prices and markups

This article investigates how search costs, price stickiness and product durability influence the impact of inflation on firm markups. We provide evidence that each of these three factors plays an independent role in influencing the responsiveness of markups to inflation. Although we find that the direct effect of inflation on markups is negative, offsetting positive influences of inflation on markups arise in industries that produce durable experience goods with flexible prices. Thus, our results indicate that markups of industries producing nondurable search goods with sticky prices tend to experience unambiguously negative impacts from inflation.