Marcel Kucher

Outcome, Process and Power in Direct Democracy: New Econometric Results

Based on survey data for Switzerland, new empiricalfindings on direct democracy are presented. In thefirst part, the authors show that, on average, public employeesreceive lower financial compensation under more directdemocratic institutions. However, top bureaucrats aremore constrained in direct democracies and have to becompensated by higher wages for that loss of power.In the second part, they demonstrate that reportedsubjective well-being of the population is much higherin jurisdictions with stronger direct democraticrights. This is not only the case because people valuepolitical outcomes higher but also because they derive utilityfrom the political process itself.

Wars and Markets: How Bond Values Reflect the Second World War

Historical events are reflected in asset prices. Based on a unique data-set, we analyse government bond prices of Germany and Austria traded on the Swiss bourse during the Second World War. Some war events generally considered crucial are clearly reflected in government bond prices; this holds, in particular, for the official outbreak of the war and the loss and gain of national sovereignty. Other events to which historians attach great importance are not reflected in bond prices, most prominently Germanys capitulation in 1945. The analysis of financial markets provides a fruitful method for evaluating the importance contemporaries attached to historical events. Copyright 2001 by The London School of Economics and Political Science

World War II as reflected on capital markets

Abstract Historical events are reflected in asset prices. We analyze government bond prices of five European countries traded on the Swiss bourse during WWII. Apart from the official outbreak of WWII, loss and gain of national sovereignty influenced the capital market.

Are Stock Options the Managers' Blessing? Stock Option Compensation and Institutional Controls

Stock option grants to top managers have largely contributed to the dramatic increase in US executive pay in recent years. In this paper it is argued that stock options, compared to other forms of compensation, have created strong incentives for managers to engage in lobbying activities for higher compensation. The empirical results presented for the S&P 500 firms and the years from 1992 to 1997 show that the relative success of such skimming activities is shaped by institutional controls. Stock option grants are substantially lower when control by the board of directors and the shareholders is higher, and competition on the product market of a firm is stronger.

Stock Options for Top Managers — The Possibilities and Limitations of a Motivational Tool

Relying solely on extrinsic motivational incentives creates both problems and unintentional results. This chapter will demonstrate this, using the example of stock options for top managers. The widespread practice of granting stock options is based on the idea that managers will thus be motivated to gear their interest and activities toward increasing the value of their company. Until now, this connection has been hard to document. In our empirical research, we find that stock options moreover have an unintentional negative impact. They enable top-level managers who are not sufficiently supervised to amass large incomes at the owners’ expense. Stock options allow managers to act in a selfish manner and may even encourage such behavior. Therefore, the complex task of motivating managers cannot be reduced to simple extrinsic incentives. On the contrary, new, alternative motivational tools should be actively sought out.

Managerial Power and Compensation

According to the widely used Managerial Power Model, a higher hierarchical position with associated higher power leads to higher compensation. In contrast, the Compensating Wage Differentials Model argues that there is a non-positive relationship between positional power and total compensation. Both power and income yield utility and in equilibrium managers are prepared to trade-off the two elements. The two opposing propositions are tested using a large survey data set from Switzerland. The results suggest that power positions do not yield higher compensation. Rather, there is a non-positive relationship between power position and compensation, if one takes into account all relevant factors influencing total compensation.

Asset Prices and History: The Case of Austria

Historical events are reflected in asset prices. Looking at Austrian government bond prices traded on the Swiss stock exchange during WWII provides therefore a useful way of interpreting the importance the thousands of people directly and indirectly engaged in stock markets attributed to various war events. An econometric analysis of the relationship between government bond values and events in Austrian history reveals that some generally considered crucial events connected with WWII are clearly reflected in Austrian government bond prices. This holds, in particular for the beginning and the end of the war. The annexation of Austria by Germany in 1938 which seemingly looked as being overwhelmingly and passionately welcomed by the Austrian population negatively affected the evaluation of Austrian government bonds, i.e. it was considered to be to the disadvantage of Austria by the people who put their own personal fortune at risk.