Korean Economic

The aim of this paper is to consider the problem of unreliable statistical inference caused by the presence of statistical misspecification, and discuss the merits of alternative ways to address the problem like invoking generic robustness results or/and using nonparametric inference. For simplicity the discussion focuses on the t-test for hypotheses concerning the mean in the context of the simple Normal model, with the misspecification coming in the form of Markov Dependence (MD). By deriving explicitly the nominal and actual error probabilities, it is shown that the presence of MD turns the t-test into an unreliable procedure. It is argued that invoking traditional robustness arguments can often be very misleading and, in general, this strategy does not address the unreliability of inference problem, even if one were to use the actual error probabilities. A more appropriate strategy is to respecify the original statistical model to account for the misspecification, and test the hypotheses of interest using an inference procedure that is optimal in the context of the respecified model. It is shown that the presence of MD gives rise to the Autoregression (AR(1)) as the respecified model, and one can test the original hypotheses concerning the mean. The optimal t-test in the context of the AR(1) is shown to be related but different from the original and the modified t-tests.

Most studies of executive compensation focus on publicly traded companies. The high levels of compensation there are often attributed to agency slack due to ownership by diffused shareholders. If so, pay at private companies more closely held should be much lower. Governments in the United States and elsewhere do not require the pay of executives in private companies to be publicly disclosed, but until 2004 the tax office of Japan published the name and tax liability of any individual paying over about $100,000 in tax. We match this tax data with rosters of some 1,400 presidents of public and 4,100 presidents of private corporations. We find that public and private company presidents have similar incomes. Both groups earn incomes that rise with the size and profitability of the firm, but the presidents' incomes are more sensitive to profitability at public firms than at private ones. In Japan, at least, public firms pay their presidents no more than private firms do, and tie that compensation more closely to observable performance benchmarks.

Most studies of executive compensation focus on publicly traded companies. The high levels of compensation there are often attributed to agency slack due to ownership by diffused shareholders. If so, pay at private companies more closely held should be much lower. Governments in the United States and elsewhere do not require the pay of executives in private companies to be publicly disclosed, but until 2004 the tax office of Japan published the name and tax liability of any individual paying over about $100,000 in tax. We match this tax data with rosters of some 1,400 presidents of public and 4,100 presidents of private corporations. We find that public and private company presidents have similar incomes. Both groups earn incomes that rise with the size and profitability of the firm, but the presidents' incomes are more sensitive to profitability at public firms than at private ones. In Japan, at least, public firms pay their presidents no more than private firms do, and tie that compensation more closely to observable performance benchmarks.

The ultimatum game has been the primary tool for studying bargaining behavior in recent years. However, not enough information is gathered in the ultimatum game to get a clear picture of responders' utility functions. We analyze a convex ultimatum game in which responders' can "shrink" an offer as well as to accept or reject it. This allows us to observe enough about responders' preferences to estimate utility functions. We then successfully use data collected from convex ultimatum games to predict behavior in standard games. Our analysis reveals that rejections can be "rationalized" with neo-classical preferences over own-and other-payoff that are convex, nonmonotonic, and regular. These findings present a precise benchmark for models of fairness and bargaining.

Human capital is increasingly believed to play an important role in the growth process, however, adequately measuring its stock remains controversial. This paper identifies three general approaches to human capital measurement; cost-based, income-based and education-based, and presents a critical review of the theories and their applications to data from a range of countries. Emphasis on empirical evidence will be given to the case of New Zealand.