SYNOPSIS: The Canadian Accounting Standards Board (hereafter, AcSB) recently issued an exposure draft to adopt separate GAAP for private enterprises. This new GAAP is justified as being consistent with the current FASB/IASB conceptual framework, but is sensitive to the different cost-benefit considerations facing private entities. We view this proposal as being innovative and responsive to the differential reporting needs of private entities. In this article we explain our reasoning and conclusions on several issues raised by the exposure draft starting with a discussion about the need for a separate conceptual framework for private enterprises. We sketch a preliminary conceptual framework that could be used to develop and justify the type of changes proposed in this exposure draft. We then discuss key issues raised in the exposure draft such as reliance on historical cost as the key basis of measurement, the significant reduction in disclosure requirements for private enterprises, and stopping the emerging issues committee from providing implementation guidance (no EICs). We also comment on the mechanism for financing the standard-setting board, the need to ensure compatibility between accounting and auditing standards, and a process for adjusting the education system to support this new private enterprise GAAP.

Prior research shows that firms generating earnings growth by improving profitability create shareholder value, while firms generating earnings growth through investment destroy value. This paper examines whether compensation committees consider this while determining CEO compensation. We first confirm prior results that growth from increased profitability is perceived by markets to add value while growth from investment does not. While growth from increased profitability is positively associated with compensation, so is growth from investment. The presence of institutional ownership increases the weight on growth from increased profitability, but does not reduce the weight on growth from investment. Further, value-oriented institutional ownership increases the sensitivity of compensation growth to growth from increased profitability and reduces the sensitivity to growth from investment. Contrarily, growth-oriented institutional ownership increases the sensitivity of compensation growth to growth from investment. Our results highlight the importance of understanding the nature of earnings growth in determining executive compensation.

Results from four studies show that the reliance on affect as a heuristic of judgment and decision-making is more pronounced under a promotion focus than under a prevention focus. Two different manifestations of this phenomenon were observed. Studies 1-3 show that different types of affective inputs are weighted more heavily under promotion than under prevention in person-impression formation, product evaluations, and social recommendations. Study 4 additionally shows that valuations performed under promotion are more scope-insensitive-a characteristic of affect-based valuations-than valuations performed under prevention. The greater reliance on affect as a heuristic under promotion seems to arise because promotion-focused individuals tend to find affective inputs more diagnostic, not because promotion increases the reliance on peripheral information per se.

Social commerce is an emerging trend in which sellers are connected in online social networks and sellers are individuals instead of firms. This article examines the economic value implications of a social network between sellers in a large online social commerce marketplace. In this marketplace, each seller creates his or her own shop, and network ties between sellers are directed hyperlinks between their shops. Three questions are addressed: (1) Does allowing sellers to connect to each other create value (i.e., increase sales)? (2) What are the mechanisms through which this value is created? and (3) How is this value distributed across sellers in the network and how does the position of a seller in the network (e.g., its centrality) influence how much he or she benefits or suffers from the network? The authors find that (1) allowing sellers to connect generates considerable economic value, (2) the network's value lies primarily in making shops more accessible to customers browsing the marketplace (the network creates a "virtual shopping mall"), and (3) the sellers who benefit the most from the network are not necessarily those who are central to the network but rather those whose accessibility is most enhanced by the network.

This paper examines image motivation -- the desire to be liked and well-regarded by others -- as a driver in prosocial behavior (doing good), and asks whether extrinsic monetary incentives (doing well) have a detrimental effect on prosocial behavior due to crowding out of image motivation. By definition, image depends on one's behavior being visible to other people. Using this unique property we show that image is indeed an important part of the motivation to behave prosocially. Moreover, we show that extrinsic incentives interact with image motivation and are therefore less effective in public than in private. Together, these results imply that image motivation is crowded out by monetary incentives; this means that monetary incentives are more likely to be counterproductive for public prosocial activities than for private ones.

Identifying the right business model for addressing global customers and formalizing that model into a global customer management program is a key task for any firm with global aspirations. The key success factor is embedding the program firmly within the firm's corporate strategy. Simply leveraging domestic or regional account management into such a program will not deliver the desired results. Based on extensive research with a global company database, this article presents a framework for successfully introducing a global customer management program. It describes evolutionary stages and explains the challenges companies face. Finally, it identifies specific strategies and key principles for firms to master the transition to becoming truly customer centric on a global basis and thus generate substantial shareholder value.

This article studies optimal mortgage design in a continuous-time setting with volatile and privately observable income, costly foreclosure, and a stochastic market interest rate. We show that the features of the optimal mortgage are consistent with an option adjustable-rate mortgage (option ARM). Under the optimal contract, the borrower is given discretion of how much to repay until his balance reaches a certain limit. The default rates and interest rate payment on the mortgage correlate positively with the market interest rate. Gains from using the optimal contract relative to simpler mortgages are the biggest for those who face more income variability, buy pricey houses given their income level, or make little or no down payment. Our model thus may help to explain a high concentration of option ARMs among riskier borrowers

Price discrimination is an extremely common type of pricing strategy engaged in by virtually every business with some discretionary pricing power. The issue of whether price discrimination reduces or increases social welfare has been considered by economists since at least 1920. At that time, it was demonstrated that, under certain (restrictive) conditions, price discrimination will reduce social welfare. Subsequent research has shown that price discrimination can increase social welfare, and that a necessary (but not a sufficient) condition for welfare to rise is that total output with discrimination exceeds the no-discrimination level. First, we present evidence about international drug price differentials. Drug prices in the top 5 countries are almost five times as high as they are in the bottom five countries. Certain features of the drug price distribution are surprising. For example, according to our drug price index, the price of drugs in Mexico (which has the second-highest drug prices) is 24% higher than it is in the U.S. (which ranks sixth out of 38 countries). There is a highly significant positive correlation between per capita income and the drug price index: on average, the price of drugs is lower in low-income countries. However, there are large deviations from the regression line. Countries (particularly low-income countries) with similar levels of income pay vastly different prices for drugs. Next, we examine income-related price differentials in the U.S. When price is defined as the amount paid by the patient, there is an inverted-U-shaped relationship between income and price. People in the lowest income category pay 25% less than high income people (16% less in cases when the patient paid nothing are excluded), but people in the middle income category (whose income is 125-200% of the poverty line) pay 6% more than high income people (whose income exceeds 400% of the poverty line). We perform an empirical investigation of whether the necessary condition for price discrimination to increase welfare—that it increase total output—is satisfied in the case of international pharmaceutical prices, by analyzing the relationship across drugs between total output growth and growth in international price dispersion. Drugs that had larger increases in international price dispersion had larger increases in total utilization, controlling for the growth in the mean price of the drug and the drug's vintage. Numerous studies have shown that increased prescription drug use results in improved health outcomes, or the converse: reductions in drug use result in worse health outcomes, such as higher risk of hospitalization and death. In addition to increasing the output of existing products, the ability to engage in price discrimination is likely to increase the number of new products. Contrary to the assumptions of some theoretical models, some markets that would not be served under uniform pricing will be served under price discrimination. This would be the case whenever there are fixed production costs, and the pharmaceutical industry has much higher fixed costs (especially R&D expense) as a percentage of sales than most other industries. Studies have shown that the amount of pharmaceutical R&D investment is influenced by factors (other than the ability to price discriminate) that determine the expected profitability of investment. Studies have also provided evidence that the development and use of new drugs has resulted in significant increases in longevity and health, and that overall, new drugs have been highly cost-effective.

Greater use of renewable energy is seen as a key component of any move to combat climate change, and is being aggressively promoted as such by the new U.S. administration. Yet there has been little economic analysis of renewable energy. This article surveys the literature on the economics of renewable energy and adds to it. The conclusion is that the main renewables face a major problem because of their intermittency (the wind doesn't always blow nor does the sun always shine) and that this has not been adequately factored into discussions of their potential. Without new storage technologies that can overcome this intermittency problem, much of the decarbonization of the economy will have to come from nuclear, carbon capture and storage (CCS), and energy efficiency, with geothermal and biofuels making small contributions. Nuclear and CCS are not without their problems. New energy storage technologies could greatly increase the role of renewables, but none are currently in sight.