merit pay practices implications for pay performance relationships this study uses a monte carlo simulation to examine how the relationship between pay and performance is affected by the pay system measurement error in appraising performance the consistency of true performance over time and the rules governing promotion decisions the authors find that conventional merit systems achieve a considerably better link between pay and performance than does a bonus system with periodic adjustments in base wages a bonus system without periodic base wage adjustments also performs less well than conventional merit systems because merit systems benefit from the consistency of true performance over time one surprising finding is that even very substantial error in the measurement of performance has only a modest effect on the pay performance correlation

time consistent public policy in this paper we study how a benevolent government that cannot commit to future policy should trade off the costs and benefits of public expenditure we characterize and solve for markov perfect equilibria of the dynamic game between successive governments the characterization consists of an inter temporal first order condition a generalized euler equation for the government and we use it both to gain insight into the nature of the equilibrium and as a basis for computations for a calibrated economy we find that when the only tax base available to the government is capital income an inelastic source of funds at any point in time the government still refrains from taxing at confiscatory rates we also find that when the only tax base is labour income the markov equilibrium features less public expenditure and lower tax rates than the ramsey equilibrium

compensation and span of control in hierarchical organizations this article presents evidence on the relationship between compensation ratios and spans of control within hierarchical organizations we find that compensation ratios are lower than span of control at any position within the hierarchy which is consistent with an elasticity of compensation to a number of subordinates lower than one managers human capital endowments determine a significant part of the salary differences throughout hierarchical levels as predicted by models of talent allocation in hierarchies differences in the size of firms should be attributed more to differences in their number of hierarchical levels than to variations in the span of control

labor market segmentation a cluster analysis of job groupings and barriers to entry real expenditures on public assistance programs have increased substantially in the past two decades as has real per capita income investments in a variety of education programs have risen and a number of jobs programs have been tried although there have been some gains for example a decline in the percentage of the population in poverty 31 474 a number of disparities persist unemployment remains at record levels and the prospect for sizable reductions in the unemployment rate seems quite small there are persistent differences between the mean household incomes of blacks and whites that have not narrowed at all during the past two decades 15 there is also a widespread perception that a disadvantaged segment of the u s population has no effective access to good jobs and if such persons get them they do not stay employed for long this means that many such adults are caught in a cycle of unemployment welfare dependency bad jobs and intermittent employment whereas there is nearly universal agreement that the persistent disparities in well being are undesirable there is considerable disagreement on what to do about this in part the disagreement stems from ignorance about the facts for example rigorous operational definitions of good and bad jobs have not been developed the notion that some persons do not have access to the good jobs is primarily based on anecdotes fortunately longitudinal data bases are now available that permit more rigorous empirical analysis of such issues

the value of hiring through employee referrals using personnel data from nine large firms in three industries call centers trucking and high tech we empirically assess the benefit to firms of hiring through employee referrals compared to nonreferred applicants referred applicants are more likely to be hired and more likely to accept offers even though referrals and nonreferrals have similar skill characteristics referred workers tend to have similar productivity compared to nonreferred workers on most measures but referred workers have lower accident rates in trucking and produce more patents in high tech referred workers are substantially less likely to quit and earn slightly higher wages than nonreferred workers in call centers and trucking the two industries for which we can calculate worker level profits referred workers yield substantially higher profits per worker than nonreferred workers these profit differences are driven by lower turnover and lower recruiting costs for referrals jel codes j24 m51 j30 j63

career concerns incentives and endogenous learning in labour markets models of career concerns provide a framework for analyzing the actions that may be taken by a manager in an attempt to influence performance signals that the market uses to update its beliefs on her productivity and the incentive problem that arises if such actions do not coincide with those that maximize the financial return to a firm s owner this survey provides a formal introduction to the main types of models of career concerns hidden action and hidden information and discusses some extensions of these models applications of the career concerns framework to explain aspects of managerial behavior and the form of labor market institutions are emphasized copyright 1992 by blackwell publishers ltd

dynamic inefficiency endogenous growth and ponzi games we show that in competitive endogenous growth models without externalities balanced growth equilibria are dynamically efficient with learning by doing externalities dynamic inefficiency may exist but due to the mix of capital rather than its scale these results are obtained independent of whether or not lifetimes are finite or generations overlap in olg models with externalities we show that ponzi games may be feasible even though equilibria are characterized by undersaving

does marriage really make men more productive this paper presents new descriptive evidence regarding marital pay premiums earned by white males longitudinal data indicate that wages rise after marriage and that cross sectional marriage premiums appear to result from a steepening of the earnings profile data from a company personnelfile that includes information on job grades and supervisor performance ratings reveal large marital status pay differences within a narrow range of occupations managers and professionals and environments a single firm married workers tend to be located in higher paying job grades there are very small pay differentials within grades married men receive higher performance ratings than single men as a result they are much more likely to be promoted controlling for rated performance however eliminates the promotion differential sanders korenman is an assistant professor of economics and public affairs at princeton university and is a faculty associate of the office of population research at princeton university and a research affiliate of the national bureau of economic research nber david neumark is an assistant professor of economics at the university of pennsylvania and a research affiliate of the nber korenman wishes to acknowledge the hewlett foundation and the harvard university center for population studies for financial support the authors are grateful to james medofffor making available an extract from the company personnelfile questions regarding data availability should be directed to professor james

tax competition among u s states racing to the bottom or riding on a seesaw abstract dramatic declines in capital tax rates among u s states and european countries have been linked by many commentators to tax competition an inevitable race to the bottom and underprovision of local public goods this paper analyzes the reaction of capital tax policy in a given u s state to changes in capital tax policy by other states our study is undertaken with a novel panel data set covering the 48 contiguous u s states for the period 1965 to 2006 and is guided by the theory of strategic tax competition the latter suggests that capital tax policy is a function of foreign out of state tax policy preferences for government services and home state and foreign state economic and demographic conditions the slope of the reaction function the equilibrium response of home state to foreign state tax policy is negative contrary to casual evidence and many prior empirical studies of fiscal reaction functions this result which stands in contrast to most published findings is due to two critical elements that allow for delayed responses to foreign tax changes and responses to aggregate shocks omitting either of these elements leads to a misspecified model and a positively sloped reaction function our results suggest that the secular decline in capital tax rates at least among u s states reflects synchronous responses among states to common shocks rather than competitive responses to foreign state tax policy while striking given prior empirical findings these results are fully consistent with the implications of the theoretical model developed in this paper and presented elsewhere in the literature rather than racing to the bottom our findings suggest that states are riding on a seesaw consequently tax competition may lead to an increase in the provision of local public goods and policies aimed at restricting tax competition to stem the tide of declining capital taxation are likely to be ineffective

a test of lazear s theory of delayed payment contracts according to lazear workers and firms enter into long term implicit contracts that discourage shirking and malfeasance by shifting compensation to the end of the contract such delayed payment contracts are less likely to occur in jobs in which it is comparatively simple to monitor worker effort this paper uses data from the national longitudinal survey and the dictionary of occupational titles to test that hypothesis in particular it tests whether jobs that involve repetitive tasks tend to be characterized by an absence of pensions mandatory retirement long job tenures and high wages for older workers

multiperson tournaments an experimental examination modern hierarchical organizations like corporations must motivate agents to work hard given their pyramid structure it is not surprising that one commonly used motivator is the promotion tournament in such tournaments agents compete to advance to positions at higher organizational levels though these tournaments are common little research has empirically looked at the interface of organizational structure and tournament design this paper aims to take a step in filling this void by comparing the performance of various tournament designs using controlled laboratory techniques

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

are those paid more really more productive the case of experience this study uses computerized personnel microdata on the white male managerial and professional employees at a major u s corporation to address the following question can the additional earnings which are associated with more labor market experience at a point in time really be explained by higher productivity at the same point in time our answer to this question based on both cross sectional and longitudinal information is that performance plays a substantially smaller role in explaining cross sectional experience earnings differentials and earnings growth than is claimed by those who have adopted the human capital explanation of the experience earnings profile this response depends critically on our assumption that the performance ratings which supervisors give to their white male managerial and professional subordinates adequately reflect the subordinates relative productivity in the year of assessment we present a great deal of evidence which strongly supports this assumption

international tax competition and the deficit bias i analyze the dynamic effects of tax competition on public budget deficits i find that stronger tax competition leads to a fiscal deficit bias at the early stages of financial liberalization when countries differ in terms of capital mobility further liberalization leads to external imbalances and diverging fiscal deficits while corporate tax rates converge consistent with theory i find that stronger tax competition increases deficits in a sample of oecd countries controlling for tax revenues and other standard determinants of fiscal deficits jel e62 f62

detecting and removing discrimination under equal opportunities policies abstract this paper surveys part of the recent voluminous literature on the economics of discrimination focusing on two key questions first how should discrimination be measured and can in fact unambiguous estimates be derived as the basis for detecting where discrimination is present and setting in train measures to eliminate it second to what extent has the implementation of equal opportunities legislation improved the relative standing of women and minority workers in the labour force this section includes a discussion of the likely effects of recent changes in the law such as the equal value amendment in the uk or the introduction of comparable worth in the usa the survey concludes that our ability to detect discrimination at all precisely is still rudimentary and consequently policy measures are likely to be inefficient for this reason

incentives for helping on the job theory and evidence recent advances in incentive theory stress the multidimensional nature of agent effort and specifically cases where workers affect one anothers performance through helping efforts this article models helping efforts as determined by the compensation package and task allocation the model is tested with australian evidence on reported helping efforts within work groups the evidence consistently supports the hypothesis that helping efforts are reduced while individual efforts are increased when promotion incentives are strong piece rates and profit sharing appear to have little effect on helping efforts while task variety and helping efforts are positively correlated

increasing returns and crowding out abstract this paper explores how public debt interferes with the accumulation of physical capital when the technology displays a production externality of the arrow romer type we identify conditions under which a small positive amount of debt will prevent the economy from ever approaching the stock of capital that it would achieve if public debt were zero we also show that the interaction of debt and production externalities may produce bounded possibly cycling capital stock sequences in economies where sustained growth rates are possible with zero national debt finally welfare issues concerning the relation between static and dynamic inefficiencies are discussed

does work experience increase productivity a test of the on the job training hypothesis using data on wage claims investigations of a state labor department we test the proposition that work experience increases productivity productivity is measured as the fraction of wages an employer allegedly owes an employee which the investigator is able to collect the recovery of back wages is accomplished without the availability of an official enforcement mechanism the empirical estimates indicate that investigators become significantly more productive during the first six years of job experience while the uniqueness of this occupation prevents generalizing this finding the study raises some important methodological issues

incentive compensation in a corporate hierarchy abstract a theoretical and empirical analysis of within job and promotion based incentives for middle managers is presented using personnel data from a firm within job incentives are stronger than implied by previous studies evidence is provided that promotions sort employees by ability and also generate incentives promotions are associated with large increases in lifetime earnings as long as performance is sustained in the future there is little evidence that the firm trades off within job and promotion based incentives as predicted instead it appears to use a simple incentive scheme resulting in declining incentives for those passed over for promotion

the signaling role of promotions further theory and empirical evidence an extensive theoretical literature investigates the role of promotions as a signal of worker ability we extend the theory by focusing on how the signaling role of promotion varies with education and then investigate the resulting predictions using a longitudinal data set that contains detailed information concerning the internal labor market history of a medium sized firm in the financial services industry our results support signaling being important for understanding the differences between promotion practices concerning bachelor s and master s degree holders while the evidence concerning the importance of signaling for high school graduates and phds is mixed

public input competition abstract public investment in infrastructure may help create agglomeration economies by attracting mobile factors such as skilled labour competition among regions in public investment can then be destructive this paper analyzes the nash equilibria to a simple model of public input competition even though the regions are assumed identical the equilibrium may not be symmetric the problem with non cooperative behaviour is not only that regions invest too much but that too many regions may choose to invest depending on the parameter values the nash equilibrium may be efficient may be inefficient or may not exist at least not in pure strategies better mobility among regions leads to more aggressive competition the analysis suggests that rents from public investment may be dissipated by governments competition to attract mobile factors

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

equilibrium capital taxation in open economies under commitment abstract this paper analyzes equilibrium capital taxation in open economies with strategic interaction in a neo classical growth model under perfect commitment i show that non cooperative capital taxes are zero in the long run for a large open economy thereby generalizing the result previously established only for the special cases of a closed and a small open economy this does not represent a race to the bottom though since the result is independent of the degree of capital mobility the number of countries or a country s size relative to the rest of the world moreover when countries cooperate they still set capital taxes to zero in the long run these outcomes are robust to different equilibrium specifications the inclusion of endogenous government spending and heterogeneous agents and non linear labor income taxation governments find it optimal to implement the efficient capital allocation in the long run both in a closed and an open economy this trumps incentives to tax foreigners domestic capital holdings by raising capital taxes and attracting capital from abroad by lowering capital taxes

does tax competition really promote growth abstract this paper considers the relationship between tax competition and growth in an endogenous growth model where there are stochastic shocks to productivity and capital taxes fund a public good which may be for final consumption or an infrastructure input absent stochastic shocks decentralized tax setting two or more jurisdictions maximizes the rate of growth as the constant returns to scale present with endogenous growth implies extreme tax competition stochastic shocks imply that households face a portfolio choice problem which dampens down tax competition and may raise taxes above the centralized level growth can be lower with decentralization our results also predict a negative relationship between output volatility and growth with decentralization

promotion incentives in the public sector evidence from chinese schools abstract we provide evidence that promotion incentives influence the effort of public employees by studying china s system of promotions for teachers predictions from a tournament model of promotion are tested using retrospective panel data on primary and middle school teachers consistent with theory high wage increases for promotion are associated with better performance teachers increase effort in years leading up to promotion eligibility and they reduce effort if they are repeatedly passed over for promotion evaluation scores are positively associated with teacher time use and with student test scores diminishing concerns that evaluations are manipulated

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

a spatial model of tax competition with multiple tax instruments abstract this paper presents a model of tax competition with two local jurisdictions in each metropolitan area located along a line segment and many metropolitan areas in the world economy the residents in each local jurisdiction are allowed to commute at a constant cost per mile to work in the other jurisdiction if a lump sum tax can be used then other taxes are not used if source based wage and business capital taxes can both be used then only the former is used in this case or if only a business capital tax can be used the local public good is underprovided

job assignments signalling and efficiency this article analyzes a model in which information about a worker s ability is only directly revealed to the firm employing the worker other firms however use the worker s job assignment as a signal of ability three results recur throughout the analysis first wage rates tend to be more closely associated with jobs than with ability levels second there is frequently an inefficient assignment of workers to jobs i e even when a firm has complete information about a worker s output third the severity of this inefficiency tends to be negatively correlated with the level of firm specific human capital in the economy

policy cooperation among benevolent governments may be undesirable this paper presents a simple counterexample to the belief that policy cooperation among benevolent governments is desirable it also explains circumstances under which such counterexamples are possible and relates them to the literature on time inconsistency since the work of hamada 1976 investigating the effects of increasing policy cooperation among countries has been a major topic in international economics a standard conclusion of this work is that increasing policy cooperation among countries is desirable in a seminal paper rogoff 1985 has challenged this view using a simple monetary model rogoff shows that cooperation among policy makers can lead to a lower level of welfare than noncooperation does rogoff s result has caused much consternation among those who advocate policy cooperation and his work has been criticized along several dimensions for example some authors including canzoneri and henderson 1988 have noted that a key assumption in rogoff s model is that the objective function of each country s policy maker does not coincide with the objective function of its residents indeed if in his model policy makers maximize the welfare of their country s residents the counterexample is overturned and cooperation strictly dominates noncooperation this feature leads some to interpret rogoff s result as simply saying that if policy makers form a coalition against the private sector they may be worse off than if they do not others such as neck and dockner 1988 have claimed that rogoff s result depends on private agents acting strategically under this interpretation rogoff s result is relevant to say economies with a large trade union but not to economies with a large number of competitive private agents in a somewhat different vein persson 1988 and especially devereux 1986a b have questioned the significance of welfare comparisons across different institutional regimes in a model without a solid foundation for the behavioural relationships this paper presents a simple model in which governments are benevolent but cooperation is still undesirable the model is a two country version of fischer s 1980 optimal tax model in it private agents are competitive in that each agent takes both prices and government policies as uninfluenced by his actions and each government maximizes the welfare of its country s residents in the paper the two different regimes cooperative and noncooperative

financial globalization inequality and the rising public debt abstract during the last three decades government debt has increased in most developed countries during the same period we have also observed a significant liberalization of international financial markets we propose a multicountry model with incomplete markets and show that governments may choose higher levels of debt when financial markets become internationally integrated we also show that public debt increases with the volatility of uninsurable income idiosyncratic risk to the extent that the increase in income inequality observed in some industrialized countries has been associated with higher idiosyncratic risk the paper suggests another potential mechanism for the rise in public debt jel d31 e62 f65 h63

a political theory of government debt and deficits in a neo ricardian framework in the presence of different abilities and therefore different bequests some individuals are bequest constrained even in a neo ricardian world such individuals vote for taxes on future generations through the issuance of bonds thereby increasing their current consumption this produces some crowding out of capital reduces wage rates and increases the interest rate as a consequence even unconstrained individuals are no longer indifferent to the size of government debt the paper derives conditions that are conducive to larger debt and deficits when each of the living generations determines current taxes social security benefits and the national debt by majority rule copyright 1989 by american economic association

residence and source based capital taxation in open economies with infinitely lived consumers abstract in this paper we investigate tax competition in a neoclassical growth model where each country may use both residence and source based capital taxes we show that both types of capital taxes are zero at any interior steady state just as in a closed economy for symmetric countries and even for countries that differ only with respect to size and productivity we prove analytically and verify numerically that the open economy policies coincide exactly with the closed economy policies in all time periods for countries that are asymmetric in other dimensions we find that source based taxes are used to manipulate the intertemporal terms of trade in the short run either way the fiscal externalities of source based taxes vanish once residence based taxes are allowed

finite lifetimes and growth abstract in this paper we study the long run growth property of overlapping generations models it is shown that in one sector models with convex technologies the asymptotic growth rate must be zero this results because the young do not have sufficient income to purchase a large capital stock thus a policy of income redistribution to the young can generate growth even if financed by income taxation additionaly it is shown that two sector models and one sector models with nonconvex technologies are consistent with growth

existence uniqueness and stability of equilibrium in an overlapping generations model with productive capital abstract this paper analyzes the existence uniqueness and stability of a steady state equilibrium in an overlapping generations model with productive capital it is shown that for any feasible set of well behaved preferences there exists a production function that satisfies the inada conditions under which the economy experiences global contraction and the steady state equilibrium is characterized by the absence of production and consumption the study establishes a strengthened inada condition which is necessary to preclude global contraction and sufficient conditions for the existence of a unique and globally stable non trivial steady state equilibrium

does the baseball labor market contradict the human capital model of investment this paper examines whether experienced players in major league baseball are paid more than their contribution to team revenue the author shows that wages increase with experience independently of productivity gains the results therefore contradict the human capital model of investment the evidence is in fact consistent with implicit contract models because most older players are relatively overpaid copyright 1992 by mit press

the effects of human resource management on small firms productivity and employees wages this paper analyses whether employees and firms differently benefit from particular human resource hr practices the focus is on small firms that may be badly informed on the impact of hr practices on firm performance in this study on dutch pharmacies it is found that firms do not reward employees skills according to their contribution to firms productivity as 1 employees are over rewarded for their sector specific skills and under rewarded for the productivity enhancing effect of their computer skills and 2 employees work experience positively affects their wages but does not have real productivity effects moreover it is found that training employees in case of vacancy problems seems to be an adequate hr practice since it increases productivity without affecting the average wage level the opposite holds for offering higher wages to newly recruited employees furthermore we find that only the employees benefit from performance evaluation interviews whereas employing many employees by tem

employer seniority discrimination evidence from enterpreneurial occupational choice abstract this research examines the theories presented in the human capital literature by becker 1975 lazear 1979 1981 and others that the relative paths of earnings and value of marginal product henceforth vmp diverge over the worklife the findings support lazear s work incentive theory for professionals but reject its application to non professionals as predicted by orthodox human capital theory documentation is also developed that earnings for non professionals equal their vmp over the job life cycle on the other hand the analysis provides no support to becker s specific training model

international coordination of fiscal deficits abstract nearly all existing studies of international coordination of fiscal deficits focus on aggregate demand aspects of the problem in contrast this paper adopts a dynamic general equilibrium perspective and emphasizes the public finance side of fiscal deficits in a world with international capital mobility the fiscal deficit of any single government affects world interest rates and therefore influences intertemporal resource allocation in all countries the paper shows that these international externalities may result in inefficiently large fiscal deficits high interest rates and low levels of welfare if international policy coordination is absent

ideology tactics and efficiency in redistributive politics we model the electoral politics of redistribution when voters and parties care about inequality in addition to their private concerns for consumption and votes respectively ideological concerns about income redistribution lead each party to adopt a general proportional income tax adjusted to appeal to the ideological leanings of high clout groups with disproportionately many swing voters which the parties also ply with pork barrel projects our results relate to director s law which says that redistributive politics favors middle classes at the expense of both rich and poor

seniority rules and productivity an empirical test the primary purpose of this paper is to test empirically the effect of labor quality on short run manufacturing productivity in doing so the study makes major advances in two areas for the first time a job tenure function is estimated and a time series of job tenure in manufacturing is developed this estimated tenure series empirically verifies the use of seniority rules in the firm worker employment relationship having generated a tenure series the authors then test whether tenure enhances productivity in manufacturing the results clearly indicate that seniority rules have a statistically significant positive impact on productivity and the pattern of the seniority rules is reminiscent of a model where human capital has a specific component copyright 1989 by the london school of economics and political science

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

the future of social security we analyze the effect of the projected demographic transition on the political support for social security and equilibrium outcomes embedding a probabilistic voting setup of electoral competition in the standard olg model with capital accumulation we find that intergenerational transfers arise in the absence of altruism commitment or trigger strategies closed form solutions predict population ageing to lead to higher social security tax rates a rising share of pensions in gdp but eventually lower social security benefits per retiree the response of equilibrium tax rates to demographic shocks reduces old age consumption risk calibrated to match features of the u s economy the model suggests that in response to the projected demographic transition social security tax rates will gradually increase to 16 other policies that distort labor supply will become less important labor supply therefore will rise in contrast with frequently voiced fears

promotion signaling gender and turnover new theory and evidence we extend promotion signaling theory to incorporate gender and across firm mobility within and across job levels evidence from worker firm linked finnish panel data supports our theory for some groups controlling for worker performance inferred from performance related pay within firm promotion probabilities are increasing and wage increases from promotion are decreasing in educational attainment for some educational groups with results stronger for first than for subsequent promotions women have lower promotion probabilities than men and a greater sensitivity of promotion probability to educational attainment across firm promotions are rare but bring wage increases exceeding those for internal promotions and across firm lateral moves

unidimensional downsian politics median utilitarian or what else abstract in this note we show that in the probabilistic version of the standard unidimensional downsian model with two candidates maximizing their expected pluralities there do not exist nash equilibria in pure strategies whenever the probabilistic component is arbitrarily small but not degenerate we argue that empirical research on electoral competition should pay more attention to the magnitude of partisanship in each group of voters since equilibrium predictions will be very sensitive to that specific electoral parameter

employer learning productivity and the earnings distribution evidence from performance measures two ubiquitous empirical regularities in pay distributions are that the variance of wages increases with experience and innovations in wage residuals have a large unpredictable component the leading explanations for these patterns are that over time either firms learn about worker productivity but productivity remains fixed or workers productivities themselves evolve heterogeneously in this paper we seek to disentangle these two models and place magnitudes on their relative importance we derive a dynamic model of learning and productivity that nests both models and allows them to coexist we estimate our model on a 20 year panel of pay and performance measures from a single large firm the baker gibbsholmstrom data incorporating performance measures yields two key innovations first the panel structure implies that we have repeat measures of correlates of productivity as opposed to the empirical evidence on employer learning which uses one fixed measure second we can separate productivity from pay whereas the previous literature on productivity evolution could not we find that both models are important in explaining the data however the predominant effect is that worker productivity evolves idiosyncratically over time implying firms must continuously learn about a moving target therefore while the majority of pay dispersion is driven by variation in individual productivity wages differ significantly from individual productivity at all experience levels due to imperfect information we believe this represents a significant reinterpretation of the empirical literature on employer learning

openness government size and the terms of trade this paper investigates the relationship between trade openness and the size ofngovernments both theoretically and empirically we argue that openness can increase the size of governments through two channels 1 a terms of trade externality whereby trade lowers the domestic cost of taxation and 2 the demand for insurance whereby trade raises risk and public transfers we provide a unified framework for studying and testing these two mechanisms our main theoretical prediction is that the relative strength of the two explanations depends on a key parameter namely the elasticity of substitution between domestic and foreign goods moreover while the first mechanism is inefficient from the standpoint of world welfare the second is instead optimal in the empirical part of the paper we provide new evidence on the positive association between openness and government size and we explore its determinants consistently with the terms of trade externality channel we show that the correlation is contingent on a low elasticity of substitution between domestic and foreign goods our findings raise warnings that globalization may have led to inefficiently large governments

the dynamics of government abstract we model income redistribution with dynamic distortions as determined by rational voting without commitment among individuals of different types and income realizations we find that redistribution is too persistent relative to that chosen by a planner with commitment the difference is larger the lower is the political influence of young agents the lower is the altruistic concern for future generations and the lower is risk aversion furthermore there tends to be too much redistribution in the political equilibrium finally smooth preference aggregation as under probabilistic voting produces less persistence and does not admit multiple equilibria which occur under majority voting aggregation

dynamic fiscal competition a political economy theory abstract i develop a political economy theory of dynamic fiscal competition via public spending and debt with internationally mobile capital strategic policies generate two cross border externalities that voters in each country fail to internalize 1 an increase in public spending that bolsters capital accumulation but also 2 a race to the top in public debt which crowds out capital the relative size of these two externalities varies with the number of financially integrated countries and interacts with the domestic political conflict between young and old voters despite residence based taxation capital tax rates are lower under strategic policies than under coordination furthermore they may decline with financial integration strategic policies lead to lower long run output and welfare relative to coordination but are preferred by subsequent generations of voters if the number of financially integrated countries is low or the political weight of the young is high

asset bubbles and endogenous growth abstract we study the interaction between productive and nonproductive savings in economies with endogenous long run growth as in the neoclassical growth setting with overlapping generations asset bubbles can exist in an economy with endogenous growth provided that they are not too large and that the growth rate in the equilibrium without bubbles exceeds the interest rate here the existence conditions for bubbles reflect parameters of tastes and technology we find that bubbles when they exist retard the growth of the economy perhaps even in the long run and reduce the welfare of all generations born after the bubble appears

external recruitment and intrafirm mobility i introduction competition for promotion has a very strong effect on employees work incentive in the stereotypic internal labor market described in doeringer and piore 1985 there are only a limited number of ports of entry into a hierarchical firm or organization so that existing employees are insulated to a large extent from external competition in their climb up the corporate ladder however lazear 1992 and baker et al 1994a 1994b find extensive external recruitments at almost all grade levels in their studies of different u s corporations if the boundary between internal and external labor markets is not impervious then the choice between external recruitment and internal promotion in filling openings becomes an important personnel decision with interesting implications on incentives opening up the competition to external applicants discourages collusion among candidates as well as offers a quick channel for absorbing external talents however it also reduces the probability of promotion for existing workers and thus their incentive to exert with adverse effect on the firm s profit in chan 1996 i suggest that work incentive for the internal promotion candidates can be maintained if external competitors are handicapped in the contest such favoritism for existing employees implies that senior positions tend to be filled internally more often than not and that a worker is recruited from the outside only if he or she demonstrates a significant margin of superiority over the internal candidates this is consistent with the observations that external recruits account for only about 15 to 20 of all appointments to top management positions see denis and denis 1995 warner et al 1988 and that roughly the same percentage of chief executive officers ceos of large u s firms are outsiders see agrawal et al 2002 chan 1996 parrino 1997 the handicapping hypothesis of promotion suggests a dilemma in personnel decisions although handicapping external applicants provides incentive for existing employees it also increases the chance of inferior internal contestants being promoted to senior positions where sorting of workers by ability into different particularly senior positions is important efficiency within the organization is compromised this tension between sorting and maintaining work incentive is explored in tsoulouhas et al 2001 unfortunately the gain in realism with the incorporation of sorting is offset by ambiguity in most of the results the ability of the firm to precommit to future compensation the relative abilities of the internal and external contestants the cost of work effort and commonality within the firm and within the industry all have a role in determining the direction and magnitude of the handicap with different combinations of these factors resulting in very different outcomes whether one starts with the chan model or the tsoulouhas model empirical evidence is important to establish the significance of the competitive handicap against external candidates there has been no shortage of empirical investigations of the incentive effects of tournaments most follow one of two different analytic approaches one approach uses cross sectional or nonpanel data such as data on executive salary across firms gibbons and murphy 1990 leonard 1990 main et al 1993 or data from professional sports tournaments see for example ehrenberg 1990 few of these studies address the distinction between internal or external contestants agrawal et al 2002 is an exception it tests implications of the handicapping hypothesis derived in tsoulouhas et al 2001 by analyzing more than 1 000 ceo successions in large u s firms from 1974 to 1995 even though some of the results are also consistent with a traditional human capital interpretation and the key hypothesis can be derived from the tsoulouhas model only under certain conditions they offer some support for the existence and relevance of the competitive handicap against external contestants

fiscal policy in an endogenous growth model in a neoclassical growth model it is possible to make a case for public debt because a balanced growth path may be dynamically inefficient this paper shows that this possibility no longer holds in an endogenous growth model with constant external returns to capital it is shown that an increase in public debt reduces the growth rate so there always exists a future generation that will be harmed and that a reduction in public debt although it increases the growth rate cannot be pareto improving one current generation must be harmed

mass media competition political competition and public policy if better informed voters receive favourable policies then mass media will affect policy because mass media provide most of the information people use in voting this paper models the incentives of the media to deliver news to different groups the increasing returns to scale technology and advertising financing of media firms induce them to provide more news to large groups such as taxpayers and dispersed consumer interests and groups that are valuable to advertisers this news bias alters the tradeoff in political competition and therefore introduces a bias in public policy the paper also discusses the effects of broadcast media replacing newspapers as the main information source about politics the model predicts that this change should raise spending on government programmes used by poor and rural voters

property taxation nash equilibrium and market power abstract differences in tax policy arise from differences in the number of jurisdictions in a metropolitan area following wildasin 4 and bucovetsky 2 the tax rates in the jurisdictions are determined in a nash game in the tax rate the tax rate and public service level as well as the welfare of residents increase as the number of jurisdictions in the metropolis decreases

enriching a theory of wage and promotion dynamics inside firms in previous work we showed that a model that integrates job assignment human capital acquisition and learning can explain several empirical findings concerning wage and promotion dynamics inside firms in this article we extend that model in two ways first we incorporate schooling and derive further testable implications that we then compare with the available empirical evidence second and more important we show that introducing task specific human capital allows us to produce cohort effects we further argue that task specific human capital is a realistic concept and may have many important implications we also discuss limitations of our extended approach

strategic promotion and compensation within a hierarchical firm structure this paper details how the composition of a worker s skills and the non observability of a worker s ability affect wage and promotion paths promotionbased compensation schemes derive naturally from the worker s asymmetrically observed ability promotion takes place over time and is inefficient since employers strategically exploit their knowledge of an able worker s ability conversely employers may be unable to efficiently demote and retain bad managers without paying bonuses employers are led to promote educated employees before their equally or more able but uneducated counterparts explanations for fast track promotions plans and other empirical regularities are provided

the effect of mandatory retirement on earnings profiles in japan using data from the japanese basic survey on wage structure for 1981 and 1986 the authors estimate the effect of the age of mandatory retirement on the rate of growth of earnings with job tenure i

fiscal competition and growth when capital is imperfectly mobile is tax competition good for economic growth we address this question using a simple model of endogenous growth governments in a system of many small jurisdictions benevolently maximize the welfare of immobile residents quadratic de installation costs limit the mobility of capital we look at optimal taxation and long run growth and we analyse the effects of cost parameter variations on taxation and growth a race to the bottom in capital tax rates is only one possibility the relationship between capital mobility and capital tax rates is not monotonic growth and capital mobility are unambiguously positively related

the effects of local market conditions on two pay setting systems in the federal sector the authors examine the sensitivity of wage setting in two federal pay systems the general schedule gs system covering white collar workers and the federal wage system fws covering blue coll

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

dynamic externalities multiple equilibria and growth abstract i consider an olg model with production and a single commodity i show that in such an environment unbounded growth of income per capita is not possible if the aggregate technology is of the constant returns to scale type i introduce an external effect in the aggregate production function and derive conditions under which persistent growth is an equilibrium outcome the introduction of an external effect also creates poverty traps and open sets of initial conditions for which there exists an infinite multiplicity of equilibria when such a multiplicity exists equilibria with the same initial position will display different asymptotic behaviors finally i show that by introducing appropriate tax schemes a unique equilibrium path can be selected

some evidence on the relationship between performance related pay and the shape of the experience earnings profile we investigate the relationship between performance related pay prp and the shape of workers experience earnings profiles in particular we argue that the slope of the profile depends critically upon the degree of equity held by workers in their enterprise as measured by the extent of prp the implication is that the slope of the profile for prp workers falls between those of their zero equity fixed wage and one hundred per cent equity self employed counterparts our empirical analysis of three british data sets namely the british social attitudes survey the british household panel survey and the british family expenditure survey supports this prior in this paper we explore the shape of the experience earnings profile for individuals employed under different types of contracts fixed wage performance related pay prp and self employment contracts we follow lazear 1979 1981 and lazear and moore 1984 in hypothesizing that the slope of the experience earnings profile reflects agency costs and the reduction thereof with increased agency costs inducing steeper profiles if monitoring costs are high firms may implement compensation schemes designed to encourage employees to self select behavior in the firms interests one such scheme defers a substantial amount of compensation until the later years of tenure the resulting experience earnings profile provides a penalty for shirking lazear and moore 1984 we therefore presume that the profiles of workers employed under fixed wage contracts are steeper than those of self employees for whom the issue of agency does not arise because of the duality of principal and owner lazear and moore 1984 the interesting case is that of workers employed under prp if such contracts represent a hybrid between fixed wage and self employment then one would expect their experience earnings profiles to lie somewhere between these two extreme