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  • Publication
    Law and Custom on the Federal Open Market Committee
    (2015-06-01) Zaring, David T
    The Federal Open Market Committee (FOMC), which controls the supply of money in the United States, may be the country’s most important agency.1 The chair of the committee is often dubbed the second most powerful person in Washington, only deferring to the President himself.2 Financial scholars and analysts obsess over the institution, leading to a rich tradition of FOMC Kremlinology, veneration, and second-guessing in business schools and economics departments. But legal scholars have been less entranced by the committee—put off, perhaps, by the fact that the institution has never been checked by the courts or by the Administrative Procedure Act (APA).4 As a result, there has been no effort to come to grips with the administrative law of the FOMC; this article seeks to redress that gap. The FOMC enjoys a legal mandate that shields its discretion to a remarkable degree. The principal claim here is that this shield, combined with the imperatives of bureaucratic organization in an institution whose raison d’etre is stability, has turned the FOMC into an agency governed by internally developed tradition in lieu of externally imposed constraints. The makeup of the committee, the materials that it consults before rendering monetary policy decisions, its voting mechanisms, and the way its decisions are promulgated are products of a mélange of evolving tradition and statutory permissiveness. One might argue that some combination of law and tradition explains what happens in most agencies. But the degree of reliance on tradition sets the FOMC apart. No one worries about the customs governing evidence presentation and voting order on multimember boards like the Securities and Exchange Commission (SEC) or the National Labor Relations Board (NLRB), but they are subjects of scrutiny at the FOMC. By the same token, APA law, rather than traditions such as that of the FOMC’s so-called “beige book,” governs what goes into the record before, say, the EPA or Commerce Department make their factual findings.5 And Supreme Court decisions like Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Automobile Insurance Co. mean that the decisions rendered by most agencies are substantially lengthier, and strive for substantially less ambiguity, than those of the FOMC.6 It is possible that this sort of development of routinized custom might be expected for agencies with few legal constraints. If so, the FOMC is a fine example of an institutional tendency, one that might have particular application in other forms of financial regulation. A mix of tradition and legal constraint are a feature of administrative constraint in that field, where litigation providing definitive opinions on required process is rare, and informal—and often nontransparent—oversight a norm. An account of the FOMC that jibes with the way this sort of regulation works might serve as a prod or a comparator for other accounts of the administrative law of financial oversight. Given this theme, the article makes the following additional points: 1. The FOMC enjoys the sorts of broad delegations that other New Deal agencies benefit from, only more so; the orders issued by the committee at the conclusion of each of its eight annual meetings do not fit within the traditional paradigms of administrative rulemaking or adjudication, leading courts to eschew any effort to review those decisions as committed to the agency’s discretion.7 2. Given its free hand, the FOMC might be expected to be an empire builder. But in reality, it has only expanded its remit with regard to the sort of transactions it takes on, which have moved beyond the purchase and sale of federal government debt to include positions in a broader range of financial assets, as the financial crisis exemplified. 3. The modest problems that the FOMC has endured at the hands of the branches that monitor independent agencies like it—the courts and Congress—have reflected its extraordinary independence and relative opacity. The courts have turned away a series of plaintiffs, including two senators, concerned about the breath of the delegation of power over the economy to the committee and the mechanism of appointment of committee members. Congress has occasionally fretted about the black box within which the committee makes its economy-changing decisions. However, in 1990, Congress removed legislation passed in the 1970s designed to require more reporting from the committee, suggesting that it, too, is cowed by the idea of subjecting the agency to much legislative oversight.8 4. The committee makes decisions in a procedurally consistent but increasingly lengthy and elaborate way. Simple correlations between the transcripts of these meetings (length, size, mood, number of times the chair spoke), the ultimate decision made by the FOMC, and a number of leading economic indicators found one intriguing relationship between attendance and the direction of the federal funds rate.9 There may be some promising research directions available for this sort of analysis. If the above observations are meant to make a descriptive case about the way the FOMC makes decisions, the question arises whether we should regret its distance from traditional sorts of administrative procedure. The FOMC’s procedural uniqueness is a function of its independence; that independence isjustly celebrated. We can live with the irregularities and experiments offered by the idiosyncratic procedures of financial regulation in general, and with the FOMC in particular, though comfort with the independence of the committee does not excuse unfamiliarity with the way it operates. It is accordingly worth determining how the FOMC does its business, and no scholar has yet done so. This lack of coverage by legal scholars of the rules and culture surrounding open market operations is not, to be sure, a terrible dereliction of duty. Administrative lawyers often assume that the subjects they study closely—rulemaking and adjudication by agencies—are quite different from other services provided by the government, including block grants, the management of state-owned enterprises, and, indeed, the oversight of interest rates. These lawyers do not necessarily claim that administrative scholarship should cover the entire waterfront of government action. Moreover, from a disciplinary perspective, although lawyers are very much engaged in financial supervision—that is, the way that the Federal Reserve (the Fed) regulates banks—they have little to do with either the decisionmaking by the FOMC, which expands or shrinks the nation’s monetary supply, or the implementation of its open market orders, which is done by the traders who staff the New York Fed’s open market operations desk. Although these are all good reasons not to place the scrutiny of the government’s open market operations agency at the top of every scholar’s agenda, they do not justify ignorance of the committee. Any lawyer interested in institutional design ought to be interested in the design of one of the government’s signature institutions; by the same token, knowing how law constrains the least rule-bound or adjudicatory of agencies essays an outline of the reach of these legal constraints. In part III of this article, the legal constraints of the FOMC are considered in the classical administrative law vein. As this article discusses, those constraints have not limited the discretion of the FOMC, which enjoys a remarkable degree of independence from Congress, the executive, and the judiciary. Nonetheless, the limitations on the freedom of committee members to do as they wish are reviewed to give the reader a comprehensive sense of how the law, as expressed by the actual practice of the courts and Congress, have constrained the agency. But the analysis of how the FOMC operates begins in part II, where the way that the constraints that do exist have affected the agency’s decisionmaking process is considered. A brief conclusion ends the analysis.
  • Publication
    Measuring Firm Innovation and its Relationship with IPO and M&A Activities
    (2019-05-01) Jiang, Wan
    This paper examines the changes in firms’ innovation performance around initial public offerings (IPO) and mergers and acquisitions (M&A) using innovation data based on patent applications, new product introductions, and scientific article publications. The quantity of innovation is measured by number of innovative outputs and the quality of innovation is measured by a variety of metrics including patent or article citation count and content-based novelty score. Results generally show that innovation quantity increases while innovation quality declines following IPO and M&A events. The findings are consistent among patent-based, product-based, and publication-based metrics, and confirm with the results from previous literature. In addition, innovation performance is found to vary with financial performance and industry characteristics. Firms that exhibit larger asset and cash holdings, higher profitability, and more R&D investments are in general more innovative in terms of both quality and quantity. In post-IPO or post-M&A years, higher industry sales concentration and geographic concentration tend to correlate with lower innovation quantity and higher innovation quality. This paper also attempts to study the mobility of innovative employees around IPO and M&A, but the results lack sufficient insights on whether the observed post-event decline in innovation quality can be explained by changes in the composition of innovators. Overall, despite the ability to produce more innovations after going public or acquiring another company, firms should be mindful of the potential loss in innovation quality.
  • Publication
    Evidence-Based Forecasting for Climate Change
    (2013-02-01) Green, Kesten C; Soon, Willie; Armstrong, J. Scott
    Following Green, Armstrong and Soon’s (IJF 2009) (GAS) naïve extrapolation, Fildes and Kourentzes (IJF 2011) (F&K) found that each of six more-sophisticated, but inexpensive, extrapolation models provided forecasts of global mean temperature for the 20 years to 2007 that were more accurate than the “business as usual” projections provided by the complex and expensive “General Circulation Models” used by the U.N.’s Intergovernmental Panel on Climate Change (IPCC). Their average trend forecast was .007°C per year, and diminishing; less than a quarter of the IPCC’s .030°C projection. F&K extended previous research by combining forecasts from evidence-based short-term forecasting methods. To further extend this work, we suggest researchers: (1) reconsider causal forces; (2) validate with more and longer-term forecasts; (3) adjust validation data for known biases and use alternative data; and (4) damp forecasted trends to compensate for the complexity and uncertainty of the situation. We have made a start in following these suggestions and found that: (1) uncertainty about causal forces is such that they should be avoided in climate forecasting models; (2) long term forecasts should be validated using all available data and much longer series that include representative variations in trend; (3) when tested against temperature data collected by satellite, naïve forecasts are more accurate than F&K’s longer-term (11-20 year) forecasts; and (4) progressive damping improves the accuracy of F&K’s forecasts. In sum, while forecasting a trend may improve the accuracy of forecasts for a few years into the future, improvements rapidly disappear as the forecast horizon lengthens beyond ten years. We conclude that predictions of dangerous manmade global warming and of benefits from climate policies fail to meet the standards of evidence-based forecasting and are not a proper basis for policy decisions.
  • Publication
    Wealth Planning For Retirees With Special-Needs Children: A Comparison of Singapore and the United States
    (2020-01-01) Rao, James
    This paper seeks to explore how families with special-needs children conduct long-term wealth and retirement planning in two different cultures: the United States and Singapore. While previous papers discuss early childhood education for those with special-needs or housing wealth separately in Singapore, there is a gap in addressing the intersectionality of these issues within such families. The main method of research was secondary, understanding various legislative efforts via online resources; when opportunities were possible, primary research was conducted in the form of interviews (some off-the-record) with various stakeholders. Overall, this paper finds that the government in the United States plays a larger role in providing financial flexibility to these families than in Singapore, where long-term solutions are funded privately until no longer feasible.
  • Publication
    Surrogate Markers for Time-Varying Treatments and Outcomes
    (2015-08-01) Hsu, Jesse Y; Kennedy, Edward H; Roy, Jason A; Stephens-Shields, Alisa J; Small, Dylan S; Joffe, Marshall M
    BACKGROUND: A surrogate marker is a variable commonly used in clinical trials to guide treatment decisions when the outcome of ultimate interest is not available. A good surrogate marker is one where the treatment effect on the surrogate is a strong predictor of the effect of treatment on the outcome. We review the situation when there is one treatment delivered at baseline, one surrogate measured at one later time point, and one ultimate outcome of interest and discuss new issues arising when variables are time-varying. METHODS: Most of the literature on surrogate markers has only considered simple settings with one treatment, one surrogate, and one outcome of interest at a fixed time point. However, more complicated time-varying settings are common in practice. In this article, we describe the unique challenges in two settings, time-varying treatments and time-varying surrogates, while relating the ideas back to the causal-effects and causal-association paradigms. CONCLUSION: In addition to discussing and extending popular notions of surrogacy to time-varying settings, we give examples illustrating that one can be misled by not taking into account time-varying information about the surrogate or treatment. We hope this article has provided some motivation for future work on estimation and inference in such settings.
  • Publication
    The Evolution of Retirement Risk Management
    (2010-01-01) Mitchell, Olivia S; Clark, Robert L
  • Publication
    The Future for Oil & Gas Majors: Activity in the Low Carbon Space & Market Reactions
    (2023-01-01) Masom, Adam
    This paper explores the influence of the green energy transition on oil and gas majors – namely, ExxonMobil, Chevron, Shell, BP, and TotalEnergies. Specifically, this study examines greenhouse gas emissions reductions strategies, investments in the low carbon space, and public market reactions to the energy transition. The global energy supply is forecasted to shift rapidly from hydrocarbons – oil, natural gas, and coal – to cleaner, lower-emission sources – hydrogen, bioenergy, solar, and wind – as economies target a net zero emission future. It is important to understand the strategies oil and gas majors are employing to drastically reduce their carbon footprint and position themselves within the energy transition. Using corporate sustainability reports and press releases, this paper analyzes empirical data relating to the energy transition, delving into the respective strategies of each oil and gas major. Additionally, this paper uses event studies to analyze abnormal returns on low carbon activities over time. The results indicate that emissions are starting to decline, but future net zero targets are inconsistent and relatively ineffective. Further, it finds that the U.S. majors lag behind their European counterparts, employing mitigative strategies whereas the European majors are building diversified portfolios of renewable energy technologies. Finally, it finds that activity in the low carbon space does not have a significantly accretive or dilutive effect on the market capitalization of each major.
  • Publication
    The Role of Discount Vouchers in Market with Customer Valuation Uncertainty
    (2015-04-01) Gao, Fei; Chen, Jian
    Online discount voucher market In the discount voucher market, customers usually face two types of valuation uncertainty, namely, preference uncertainty and consumption state uncertainty. Preference uncertainty is related to the customer's lack of relevant experience with the merchant, whereas consumption state uncertainty is related to the advance selling nature of the discount voucher mechanism. By taking a comprehensive perspective (i.e., considering revenue management and promotion effect at the same time), we find (i) no show of voucher buyers may not be a good thing for the merchant, especially for those large or start-up ones; (ii) offering refund may always hurt the merchant's profit and the PayPal model may not be optimal in terms of maximizing social welfare; and (iii) market segmentation is not necessary for the profitability of promotion.
  • Publication
    Competition Policy and Cartel Size
    (2015-02-01) Bos, Iwan; Harrington, Joseph E
    This article examines endogenous cartel formation in the presence of a competition authority. Competition policy is shown to make the most inclusive stable cartels less inclusive. In particular, small firms that might have been cartel members in the absence of a competition authority are no longer members. Regarding the least inclusive stable cartels, competition policy can either decrease or increase their size and, in the latter case, the collusive price can rise.
  • Publication
    Testing Behavioral Hypotheses Using an Integrated Model of Grocery Store Shopping Path and Purchase Behavior
    (2009-10-01) Hui, Sam K; Bradlow, Eric T; Fader, Peter S
    We examine three sets of established behavioral hypotheses about consumers' in-store behavior using field data on grocery store shopping paths and purchases. Our results provide field evidence for the following empirical regularities. First, as consumers spend more time in the store, they become more purposeful—they are less likely to spend time on exploration and more likely to shop/buy. Second, consistent with “licensing” behavior, after purchasing virtue categories, consumers are more likely to shop at locations that carry vice categories. Third, the presence of other shoppers attracts consumers toward a store zone but reduces consumers' tendency to shop there.