John H. Huston

Quality, Uncertainty and the Internet: The Market for Cyber Lemons

The internet makes it easier for buyers to purchase goods from distant sellers. However, the inability of the buyer to examine the merchandise results in asymmetry of information. This paper develops a theoretical model to analyze the relationship between quality and price in a setting of asymmetrical information. In the spirit of Akerlof (1970), the model predicts that higher quality goods are less likely to be sold in the market. Since buyers have difficulty distinguishing quality, sellers would have to accept lower prices for their highest quality items. The model is tested using data from internet coin auctions. The results show that coins that are claimed to be of higher quality are less likely to sell and when they do sell do so at lower prices relative to their market value.

The scholarly output of economists: A description of publishing patterns

This paper analyzes the research productivity of a cohort of economists over the 15 years following receipt of their doctorate degrees, contrasting their results in publishing articles, books, and textbooks after controlling for the individual characteristics of the economists in the sample. Specifically, this paper considers the quality of graduate school, the type of employment, the general area of dissertation research, and the gender of each individual in the cohort. Primary conclusions indicate that scholarly journals are the most important research outlet, and that book production is a complementary activity to output in scholarly journals. Moreover, publishing success is closely related to the quality of the graduate school attended as well as the type of employer. According to this research, women do not face a statistically significant disadvantage to publishing. Finally, the analysis documents that midway through the 15-year time span covered by this study, output begins to decline, reflecting the post-tenure drop-off in research productivity.

Right-to-work laws and union density: New evidence from micro data

Although union density is much lower in Right-to-Work (RTW) states than in states permitting union shops, most studies have found that after correcting for omitted-variable and simultaneity biases, RTW laws do not have independent impact on union density. However, these studies typically use data sets which include certain government, agricultural, supervisory and transportation workers who are not subject to RTW legislation thus diluting the effect of RTW laws. When these employees are excluded from the data set, we find that RTW laws do significantly affect union density in the private sector.

The Location of Airline Hubs

In the decade since deregulation, the route structure of the airline industry has changed dramatically. The economies of scope that can be captured by using the hub-and-spoke route network have led to the development of many new hubs and to the expansion of others. This transformation has had profound effects on competition and market structure in the industry. City-pair markets with a hub at one end point are less contestable than other markets [5] and, as a result, tend to have higher fares [3; 4]. The scope economies from operating a hub at a given city result in nonstop service being offered to that city from more points than would be possible without a hub [6; 11; 13; 16]. These scope economies also increase load factors and thus reduce average costs [1]. The location of hubs is critical to the performance of the industry. Given the powerful scope economies associated with hub operation, alternative hubs may be the only sources of competition on many low-density routes. And, as mergers increase the intra-airport concentration at existing hubs, the location of alternative hubs grows in importance. Even for routes that are currently served by only one carrier, the existence of a competitors well-placed hub creates potential competition which reduces fares [4]. In this paper, we explore the determinants of airline hub location with the goals of finding a coherent explanation for the current pattern of hubs and identifying potential sites for future hubs. Though there is a vast literature on the hub-and-spoke route system, hub location has remained a virtually neglected topic. And very little of the literature that exists addresses the pattern of hub location. Schwieterman [18], for example, sought to explain the quantity of nonstop service (as opposed to connecting service) in the sixty largest population centers in the U.S. He found that the most important determinants of nonstop service were market size, length of haul and proximity to hubs. Jeng [12] studied the impact of market size, network size and number of cities on city-pair routings in a single-hub network, modeling which pairs would be served nonstop and which by connection. Bauer [2] modeled the decision to place a hub in a given city as a function of demographic and economic variables. Multicollinearity made interpretation of the individual variables difficult, but the model correctly categorized 87 percent of the 115 cities in his sample. Like Bauer, we seek the determinants of the pattern of hubs which has evolved in the deregulated airline industry. Our model, however, is richer, and our sample is considerably larger. We

Perceived risk and the precautionary demand for money

Abstract Keynes contended that individuals hold money for fear of being unable to meet unforeseen future cash requirements. This ‘precautionary demand’ for money has long been an accepted part of monetary theory, but has played a subservient role because of our inability to measure an individuals degree of aversion to risk. This study, however, employs a risk taking scale, similar to that developed by Zuckerman, to empirically investigate Keyness precautionary demand for money. The results are sufficiently encouraging to suggest that this scale might successfully be applied to other economics subfields in which risk plays a role.

Rational forecasts: On confirming ambiguity as the mother of conformity

Abstract The Rational Expectations Hypothesis claims that all available information is used in making forecasts. We contend that one of the pieces of information used by forecasters is the previous forecasts of others. Psychologists have demonstrated that under conditions of ambiguous stimuli. individuals frequently adapt their individual opinions so as to conform to peer opinions. Thus, we develop a Convergent Expectations Hypothesis, in which forecasters incorporate previous forecasts of other agents in forming their own expectations. The hypothesis is tested using data from six forecaster groups for four time periods. In all four time periods, forecasters appear to make considerable use of the prior consensus forecast in developing their own predictions. The resulting expectations may still be ‘rational’ in that there are psychological and perhaps financial benefits to conforming to the forecasts of professional peers.

The Meaning of Size: Output? Scope? Capacity? The Case of Airline Hubs

The “size” of a production facility has different specific meanings depending on the nature of the business decision at issue. We present a general theoretical model illustrating the profit-maximizing firms interrelated choice of plant size in long-run, medium-run and short-run contexts. The model is then estimated for U.S. airline hubs. The results suggest that competition operates primarily via the capacity (long-run) size decision. A game-theoretic simulation based upon the results is consistent with the argument that the smaller of two hubs sharing an airport is at a significant competitive disadvantage.

Airline hubs in the Single European Market: A benchmark analysis

Abstract‘Liberalization’ of European air markets could allow the formation of airline hubs to obtain the associated economies of scope and scale. This study simulates the formation of these hubs. A model of U.S. hub location, estimated as a function of demographic and economic characteristics, is applied to European cities to identify likely hub locations. The results provide a benchmark for evaluating future airline competition in the Single European Market. However, the study is only an approximate prediction of hub location because political and structural constraints will keep the European air market from developing the competitive atmosphere found in the U.S..

Housing and behavioural factors

The field of behavioural finance is well established. Studies of housing bubbles are less common than studies of equity overvaluation and studies of the behavioural aspects of real-estate pricing are rare. This article examines the housing market from 1987 to the present with particular attention to the 2003 to 2007 bubble. Both behavioural and traditional variables are considered. Models with behavioural variables are seen to provide a better fit during the housing bubble. A state-space model shows that the coefficients on those behavioural variables vary in ways consistent with the emergence and dissipation of the recent housing bubble.

Speculative excess and the Federal Reserve's response

Purpose - The purpose of this paper is to develop a single variable indicative of the state of market speculation; to determine whether the Federal Reserve has attempted to quell speculation when it has been most rampant and whether such attempts were successful. Design/methodology/approach - The paper examine the literature on market “bubbles” and the Federal Reserves treatment of them; to determine a single variable reflective of market speculation via principle components integration; to examine the Federal Reserves interaction with market speculation by estimating a vector autoregression version of the Taylor rule. Findings - It is possible to construct a single variable representative of market speculation, termed the index of speculative excess that correlates well with standard views of market excess; the Federal Reserve did attempt to retard market speculation during the three major bull markets of the past century; monetary policy did little to inhibit market speculation. Originality/value - Highly original in the construction of a single variable reflective of market speculation; joins the ongoing debate as to the extent of Federal Reserve concern with speculative activity and the Feds poor record of accomplishment in this area.