Market Efficiency after the Financial Crisis: It's Still a Matter of Information Costs

Compared to the worldwide financial carnage that followed the Subprime Crisis of 2007–2008, it may seem of small consequence that it is also said to have demonstrated the bankruptcy of an academic financial institution: the Efficient Capital Market Hypothesis (“ECMH”). Two things make this encounter between theory and seemingly inconvenient facts of consequence. First, the ECMH had moved beyond academia, fueling decades of a deregulatory agenda. Second, when economic theory moves from academics to policy, it also enters the realm of politics, and is inevitably refashioned to serve the goals of political argument. This happened starkly with the ECMH. It was subject to its own bubble—as a result of politics, it expanded from a narrow but important academic theory about the informational underpinnings of market prices to a broad ideological preference for market outcomes over even measured regulation. In this Article we examine the Subprime Crisis as a vehicle to return the ECMH to its information cost roots that support a more modest but sensible regulatory policy. In particular, we argue that the ECMH addresses informational efficiency, which is a relative, not an absolute measure. This focus on informational efficiency leads to a more focused understanding of what went wrong in 2007–2008. Yet informational efficiency is related to fundamental efficiency—if all information relevant to determining a security’s fundamental value is publicly available and the mechanisms by which that information comes to be reflected in the security’s market price operate without friction, fundamental and informational efficiency coincide. But where all value-relevant information is not publicly available and/or the mechanisms of market efficiency operate with frictions, the coincidence is an empirical question both as to the information efficiency of prices and their relation to fundamental value. Properly framing market efficiency focuses our attention on the frictions that drive a wedge between relative efficiency and efficiency under perfect market conditions. So framed, relative efficiency is a diagnostic tool that identifies the information costs and structural barriers that reduce price efficiency which, in turn, provides part of a realistic regulatory strategy. While it will not prevent future crises, improving the mechanisms of market efficiency will make prices more efficient, frictions more transparent, and the influence of politics on public agencies more observable, which may allow us to catch the next problem earlier. Recall that on September 8, 2008, the Congressional Budget Office publicly stated its uncertainty about whether there would be a recession and predicted 1.5 percent growth in 2009. Eight days later, Lehman Brothers had failed, and AIG was being nationalized

The New Business Entities in Evolutionary Perspective

The many legal forms for business organizations that first appeared in the U.S. during the last thirty years - the Limited Liability Company (LLC), the Limited Liability Partnership (LLP), the Limited Liability Limited Partnership (LLLP), and the statutory Business Trust - all combine the pattern of creditors' rights, or asset partitioning, that is traditional to the business corporation with the freedom of contract among investors and managers that is traditional to the partnership. To view these new entities as partnership-like is to treat the degree of freedom of contract as the essential difference between the traditional corporation and partnership forms; to view them as corporation-like is to treat the pattern of creditors' rights as the essential difference. While recent scholarship often takes the former view, the latter seems more accurate. History shows that much of the contractual inflexibility in the traditional corporation served merely to buttress its pattern of creditors' rights, and that this inflexibility fell away upon the development of substitute sources of investor protection. The new forms are thus better understood as part of a continuing development of the corporate form rather than as entities more akin to the traditional partnership, which has in fact been evolving in a different direction. The essay first develops this argument in terms of the tradeoff between contractual freedom and the form of asset partitioning that to date has received the most scholarly attention - that is, limited liability. It then explores the evolution of the new forms from a less familiar perspective, focusing on the entity shielding component of asset partitioning

PKR is not obligatory for high-fat diet-induced obesity and its associated metabolic and inflammatory complications

Protein kinase R (PKR) has previously been suggested to mediate many of the deleterious consequences of a high-fat diet (HFD). However, previous studies have observed substantial phenotypic variability when examining the metabolic consequences of PKR deletion. Accordingly, herein, we have re-examined the role of PKR in the development of obesity and its associated metabolic complications in vivo as well as its putative lipid-sensing role in vitro. Here we show that the deletion of PKR does not affect HFD-induced obesity, hepatic steatosis or glucose metabolism, and only modestly affects adipose tissue inflammation. Treatment with the saturated fatty acid palmitate in vitro induced comparable levels of inflammation in WT and PKR KO macrophages, demonstrating that PKR is not necessary for the sensing of pro-inflammatory lipids. These results challenge the proposed role for PKR in obesity, its associated metabolic complications and its role in lipid-induced inflammation

Brief of Corporate Law Professors as Amici Curie in Support of Respondents

The Supreme Court has looked to the rights of corporate shareholders in determining the rights of union members and non-members to control political spending, and vice versa. The Court sometimes assumes that if shareholders disapprove of corporate political expression, they can easily sell their shares or exercise control over corporate spending. This assumption is mistaken. Because of how capital is saved and invested, most individual shareholders cannot obtain full information about corporate political activities, even after the fact, nor can they prevent their savings from being used to speak in ways with which they disagree. Individual shareholders have no “opt out” rights or practical ability to avoid subsidizing corporate political expression with which they disagree. Nor do individuals have the practical option to refrain from putting their savings into equity investments, as doing so would impose damaging economic penalties and ignore conventional financial guidance for individual investors

Ernst Freund as Precursor of the Rational Study of Corporate Law

Gindis, David, Ernst Freund as Precursor of the Rational Study of Corporate Law (October 27, 2017). Journal of Institutional Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2905547, doi: https://dx.doi.org/10.2139/ssrn.2905547The rise of large business corporations in the late 19th century compelled many American observers to admit that the nature of the corporation had yet to be understood. Published in this context, Ernst Freund's little-known The Legal Nature of Corporations (1897) was an original attempt to come to terms with a new legal and economic reality. But it can also be described, to paraphrase Oliver Wendell Holmes, as the earliest example of the rational study of corporate law. The paper shows that Freund had the intuitions of an institutional economist, and engaged in what today would be called comparative institutional analysis. Remarkably, his argument that the corporate form secures property against insider defection and against outsiders anticipated recent work on entity shielding and capital lock-in, and can be read as an early contribution to what today would be called the theory of the firm.Peer reviewe

Disparate contributions of the Fanconi anemia pathway and homologous recombination in preventing spontaneous mutagenesis

Fanconi anemia (FA) is a chromosomal instability disorder in which DNA-damage processing defects are reported for translesion synthesis (TLS), non-homologous end joining (NHEJ) and homologous recombination (HR; both increased and decreased). To reconcile these diverse findings, we compared spontaneous mutagenesis in FA and HR mutants of hamster CHO cells. In the fancg mutant we find a reduced mutation rate accompanied by an increased proportion of deletions within the hprt gene. Moreover, in fancg cells gene amplification at the CAD and dhfr loci is elevated, another manifestation of inappropriate processing of damage during DNA replication. In contrast, the rad51d HR mutant has a greatly elevated rate of hprt mutations, >85% of which are deletions. Our analysis supports the concept that HR faithfully restores broken replication forks, whereas the FA pathway acts more globally to ensure chromosome stability by promoting efficient end joining of replication-derived breaks, as well as TLS and HR

Towards an Economy of Higher Education

This paper draws a distinction between ways thinking and acting, and hence of policy and practice in higher education, in terms of different kinds of economy: economies of exchange and economies of excess. Crucial features of economies of exchange are outlined and their presence in prevailing conceptions of teaching and learning is illustrated. These are contrasted with other possible forms of practice, which in turn bring to light the nature of an economy of excess. In more philosophical terms, and to expand on the picture, economies of excess are elaborated with reference, first, to the understanding of alterity in the work of Emmanuel Levinas and, second, to the idea of Dionysian intensity that is to be found in Nietzsche. In the light of critical comment on some current directions in policy and practice, the implications of these ways of thinking for the administrator, the teacher and the student in higher education are explored

Tumor Progression Locus 2 (Tpl2) Deficiency Does Not Protect against Obesity-Induced Metabolic Disease

Obesity is associated with a state of chronic low grade inflammation that plays an important role in the development of insulin resistance. Tumor progression locus 2 (Tpl2) is a serine/threonine mitogen activated protein kinase kinase kinase (MAP3K) involved in regulating responses to specific inflammatory stimuli. Here we have used mice lacking Tpl2 to examine its role in obesity-associated insulin resistance. Wild type (wt) and tpl2−/− mice accumulated comparable amounts of fat and lean mass when fed either a standard chow diet or two different high fat (HF) diets containing either 42% or 59% of energy content derived from fat. No differences in glucose tolerance were observed between wt and tpl2−/− mice on any of these diets. Insulin tolerance was similar on both standard chow and 42% HF diets, but was slightly impaired in tpl2−/− mice fed the 59% HFD. While gene expression markers of macrophage recruitment and inflammation were increased in the white adipose tissue of HF fed mice compared with standard chow fed mice, no differences were observed between wt and tpl2−/− mice. Finally, a HF diet did not increase Tpl2 expression nor did it activate Extracellular Signal-Regulated Kinase 1/2 (ERK1/2), the MAPK downstream of Tpl2. These findings argue that Tpl2 does not play a non-redundant role in obesity-associated metabolic dysfunction

Optimum allocation of resources for QTL detection using a nested association mapping strategy in maize

In quantitative trait locus (QTL) mapping studies, it is mandatory that the available financial resources are spent in such a way that the power for detection of QTL is maximized. The objective of this study was to optimize for three different fixed budgets the power of QTL detection 1 − β* in recombinant inbred line (RIL) populations derived from a nested design by varying (1) the genetic complexity of the trait, (2) the costs for developing, genotyping, and phenotyping RILs, (3) the total number of RILs, and (4) the number of environments and replications per environment used for phenotyping. Our computer simulations were based on empirical data of 653 single nucleotide polymorphism markers of 26 diverse maize inbred lines which were selected on the basis of 100 simple sequence repeat markers out of a worldwide sample of 260 maize inbreds to capture the maximum genetic diversity. For the standard scenario of costs, the optimum number of test environments (Eopt) ranged across the examined total budgets from 7 to 19 in the scenarios with 25 QTL. In comparison, the Eopt values observed for the scenarios with 50 and 100 QTL were slightly higher. Our finding of differences in 1 − β* estimates between experiments with optimally and sub-optimally allocated resources illustrated the potential to improve the power for QTL detection without increasing the total resources necessary for a QTL mapping experiment. Furthermore, the results of our study indicated that also in studies using the latest genomics tools to dissect quantitative traits, it is required to evaluate the individuals of the mapping population in a high number of environments with a high number of replications per environment