Journal of Economic Literature
Vol. 35, No. 1, March 1997

Contents

Event Studies in Economics and Finance
A. Craig MacKinlay      13

Gibrat's Legacy
John Sutton      40

Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach
Israel M. Kirzner      60

Monopsony in the Labor Market
William M. Boal and Michael R. Ransom      86

Why Should Trade Negotiators Negotiate About?
Paul Krugman      113

Book Reviews in pdf format (AEA members only)


Event Studies in Economics and Finance
A. Craig MacKinlay

The event study is an important research tool in economics and finance. The goal of an event study is to measure the effects of an economic event on the value of firms. Event study methods exploit the fact that, given rationality in the marketplace, the effects of an event will be reflected immediately in security prices. Thus the impact can be measured by examining security prices surrounding the event. In this paper event study methods are described including some of the potential complications. An example is included to illustrate the approach.

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Gibrat's Legacy
John Sutton

This paper traces the time series ("Growth of Firms") tradition in the study of market structure, and looks at how recent studies on entry and the size distribution of firms have modified thinking in this area.

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Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach
Israel M. Kirzner

Modern Austrian Economics, building on earlier work of Mises and Hayek, explains the determination of market prices in terms of entrepreneurial discovery processes. Dissatisfied with mainstream equilibrium models, Austrians see market equilibrating tendencies as series of competitive discoveries increasing mutual awareness among market participants. (Unlike deliberate search, discovery consists in alert entrepreneurs noticing profit opportunities, generated by earlier errors, which had been entirely unsuspected.) This approach entails unconventional implications for such issues as: antitrust policy, economic justice under capitalism, the meaning of economic welfare, and the possibility of rational planning under socialism.

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Monopsony in the Labor Market
William M. Boal and Michael R. Ransom

This paper surveys recent theoretical and empirical research on monopsony in labor markets, broadly defined as upward-sloping labor supply to an employer. We compare older monopsony models based on small numbers of employers with newer models based on labor market frictions such as moving costs and search. We also compare older econometric approaches that focus on static wage-concentration relationships with newer approaches that focus on dynamics. Our review of empirical estimates suggests that monopsony power based on small numbers of employers is probably rare but occasionally large, while monopsony power based on frictions is probably widespread but small on average.

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Why Should Trade Negotiators Negotiate About?
Paul Krugman

In recent years there have been growing demands to make trade liberalization contingent on adoption of common labor and environmental standards. The straightforward economic answer is that this makes little sense: neither the gains from trade nor the gains from appropriate regulation are compromised if other countries impose standards that are weaker than your own. It is possible to offer second-bet economic rationales for harmonization, but these are empirically unconvincing. The only serious argument in favor or regulation is political: that regulation which is in the national interest may not be politically feasible unless other countries do the same.

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