Heteroskedasticity-Robust Inference in Finite Samples

Since the advent of heteroskedasticity-robust standard errors, several papers have proposed adjustments to the original White formulation. We replicate earlier findings that each of these adjusted estimators performs quite poorly in finite samples. We propose a class of alternative heteroskedasticity-robust tests of linear hypotheses based on an Edgeworth expansions of the test statistic distribution. Our preferred test outperforms existing methods in both size and power for low, moderate, and severe levels of heteroskedasticity.

Entry in the ADHD drugs market: Welfare impact of generics and me-toos

Recent decades have seen a growth in treatments for attention deficit hyperactivity disorder (ADHD) including many branded and generic drugs. In the early 2000's, new drug entry dramatically altered market shares. We estimate a demand system for ADHD drugs and assess the welfare impact of new drugs. We find that entry induced large welfare gains by reducing prices of substitute drugs, and by providing alternative delivery mechanisms for existing molecules. Our results suggest that the success of follow-on patented drugs may come from unanticipated innovations like delivery mechanisms, a factor ignored by proposals to retard new follow-on drug approvals

Are Regulators Forward-Looking? The Market Price of Copper Versus the Regulated Price of Mandatory Access to Unbundled Local Loops in Telecommunications Networks

The Enduring Lessons of the Breakup of AT&T: A Twenty-Five Year Retrospective. \u27 Conference held at the University of Pennsylvania Law School on April 18-19, 2008. Around the world, since 1996, regulators have mandated that incumbent local exchange carriers (ILECs) offer competitors access to their network at regulated prices that reflect forward-looking cost. Regulated prices for unbundled network elements are based on total element long-run incremental cost (TELRIC), which in turn is calculated using engineering models that estimate the costs of a hypothetical carrier employing the most efficient telecommunications technology currently available and the lowest cost network configuration, given the existing location of the ILEC\u27s actual wire centers. These cost models require detailed estimates of the equipment and installation prices of the numerous components that are used in a telecommunications network. When there is uncertainty about how these prices will change over the period for which costs and prices are required, the resulting cost estimates used for setting the regulated prices of unbundled network elements can be very inaccurate. Similarly, when regulators in other jurisdictions are considering such rates as benchmarks, it is necessary to make adjustments to account for such large differences in critical input prices, so that the benchmark rates will be representative of the costs that actually will be incurred by efficient carriers offering unbundled elements in those jurisdictions. The precipitous rise in the price of copper since 2003 exemplifies this need to reevaluate the inputs used by regulators in their cost model, as well as the inferences drawn from those models. These increases differ from the type of constant annual expected input price growth (or decline) situation that some cost models used outside the United States have accommodated with tilted annuity methods. Rather than a gradual anticipated price increase, copper prices escalated rapidly and are likely to remain well above the levels that regulators used to set existing loop rates. Accounting for such evidence would change the forward-looking costs of a hypothetically efficient ILEC network that one of the most prominent U.S. state regulatory commissions--the California Public Utilities Commission (CPUC)--established in 2006. Similarly, in 2007, the Commerce Commission in New Zealand employed a benchmarking methodology for the pricing of unbundled loops that failed to account for the increased price of copper. A global trend may be emerging among telecommunications regulators to ignore the input requirements of their own forward-looking cost models. Such a trend would be consistent with a version of regulatory opportunism in which regulators are forward-looking only when doing so produces lower regulated prices over time. The risk of regulatory opportunism and the high price of copper together create a strong incentive for an ILEC to replace its copper loops with optical fiber. Although some CLECS could be adversely affected by such a decommissioning of copper loops, an ILEC has no duty under U.S. antitrust or telecommunications law to keep copper loops in service for the benefit of its competitors

License prices for financially constrained firms

It is often alleged that high auction prices inhibit service deployment. We investigate this claim under the extreme case of financially constrained bidders. If demand is just slightly elastic, auctions maximize consumer surplus if consumer surplus is a convex function of quantity (a common assumption), or if consumer surplus is concave and the proportion of expenditure spent on deployment is greater than one over the elasticity of demand. The latter condition appears to be true for most of the large telecom auctions in the US and Europe. Thus, even if high auction prices inhibit service deployment, auctions appear to be optimal from the consumers’ point of view

Energy Dissipation in Interstellar Cloud Collisions

We present a study of the kinetic energy dissipation in interstellar cloud collisions. The main aim is to understand the dependence of the elasticity (defined as the ratio of the final to the initial kinetic energy of the clouds) on the velocity and mass ratio of the colliding clouds, magnetic field strength, and gas metallicity for head-on collisions. The problem has been studied both analytically and via numerical simulations. We have derived handy analytical relationships that well approximate the analogous numerical results. The main findings of this work are: (i) the kinetic energy dissipation in cloud collisions is minimum (i.e. the collision elasticity is maximum) for a cloud relative velocity $v_r \simeq 30 km s^{-1}$; (ii) the above minimum value is proportional $Z L_c^2$, where $Z$ is the metallicity and $L_c$ is the cloud size: the larger is $Z L_c^2$ the more dissipative (i.e. inelastic) the collision will be; (iii) in general, we find that the energy dissipation decreases when the magnetic field strength, and mass ratio of the clouds are increased and the metallicity is decreased, respectively. We briefly discuss the relevance of this study to the global structure of the interstellar medium and to galaxy formation and evolution.Comment: 16 pages, aasms LaTeX, 7 figures. ApJ, accepte

A quantitative model of trading and price formation in financial markets

We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties of a market, such as the diffusion rate of prices, which is the standard measure of financial risk, and the spread and price impact functions, which are the main determinants of transaction cost. Guided by dimensional analysis, simulation, and mean field theory, we find scaling relations in terms of order flow rates. We show that even under completely random order flow the need to store supply and demand to facilitate trading induces anomalous diffusion and temporal structure in prices.Comment: 5 pages, 4 figure

A panel analysis of UK industrial company failure

We examine the failure determinants for large quoted UK industrials using a panel data set comprising 539 firms observed over the period 1988-93. The empirical design employs data from company accounts and is based on Chamberlain’s conditional binomial logit model, which allows for unobservable, firm-specific, time-invariant factors associated with failure risk. We find a noticeable degree of heterogeneity across the sample companies. Our panel results show that, after controlling for unobservables, lower liquidity measured by the quick assets ratio, slower turnover proxied by the ratio of debtors turnover, and profitability were linked to the higher risk of insolvency in the analysis period. The findings appear to support the proposition that the current cash-flow considerations, rather than the future prospects of the firm, determined company failures over the 1990s recession