privatization in eastern germany management selection and economic transition this paper suggests that management s role in enterprise restructuring and market failures in the managerial labor market help explain important features of the german privatization program a model of adverse selection based on information advantages for private owners demonstrates how privatization can improve the quality and number of western managers in eastern enterprises these benefits can increase with the size of the transition evidence of management replacement and significant differences between state owned and privatized firms from a survey of eastern german firms supports model assumptions and predictions these results suggest the importance of management replacement to successful privatization copyright 1997 by american economic association

female labour supply and marital status decisions a life cycle model this paper studies the interdependence between and the determinants of life cycle marital status and labour force participation decisions of women a dynamic utility maximization model is presented and estimated using longitudinal data on women from the panel study of income dynamics the mle method employed involves solving a dynamic programming problem further a minimum distance estimator is proposed which allows for the incorporation of wage data in a computationally simple way the estimates are used to predict changes in the life cycle patterns of employment marriage and divorce due to differences in education race the female s earnings and her potential husband s earnings the estimation results indicate that the utility gains to marriage are decreasing in the female s wage rate and increasing in her potential husband s earnings while the opposite is found for gains to working ignoring the endogeneity of marital status decisions is shown to lead to an underestimation of own and husband s wage effects on female labour supply

return migration the european experience labour immigration contributed strongly to europe s post war economic development in contrast to migration to north america or australia these movements of labour were always seen as temporary by sending and receiving countries and at least initially also by most migrants although many migrants stayed more permanently return migration is a highly relevant feature in practice its significant role and the underlying behavioural mechanisms are not well understood however it is therefore not too surprising that most policy measures taken in the 1970s and 1980s to encourage return migration failed the paper takes the view that much can be learned from recent european history temporary immigration schemes may be helpful to moderate illegal migration and to foster east west economic relationships given the tight policies in the european union short term migration seems to be the only channel to open the door slightly the paper reviews the european history of return migration and the policy regimes in important european labour migration receiving countries it also provides new empirical evidence on the determinants of return behaviour and successful return return propensities of migrants increase with the age at entry but decrease with the number of years of residence conditional on having decided to return however the remaining years in the country decrease with years of residence and keeping years of residence constant with entry age return incentives may cause dissatisfaction and reintegration problems in the home country the results support the view that economic benefits are the larger the earlier it is clear whether migration is temporary or permanent

optimal contracts under adverse selection and moral hazard a continuous time approach this article presents a continuous time agency model in the presence of adverse selection and moral hazard with a risk averse agent and a risk neutral principal under the model setup we show that the optimal controls are constant over time and thus the optimal menu consists of contracts that are linear in the final outcome we also show that when a moral hazard problem adds to an adverse selection problem the monotonicity condition well known in the pure adverse selection literature needs to be modified to ensure the incentive compatibility for information revelation the model is applied to a few managerial compensation problems involving managerial project selection and capital budgeting decisions we argue that in the third best world the relationship between the volatility of the outcome and the sensitivity of the contract depends on interactions between the managerial cost and the firm s production functions contrary to conventional wisdom sometimes the higher the volatility the higher the sensitivity of the contract the firm receiving good news sometimes chooses safer projects or invests less than it does with bad news we also examine the effects of the observability of the volatility on corporate investment decisions copyright 2005 oxford university press

unemployment benefits and labor market transitions a multinomial logit model with errors in classification this paper utilizes validation data on survey response error in the current population survey to generalize the standard multinomial logit model to allow for spurious events that result from classification error the authors basic approach could be used with other stochastic models of discrete events as well they illustrate their algorithm by studying the effect of unemployment insurance on transitions from unemployment to employment and on labor force withdrawal their results confirm earlier work suggesting that unemployment insurance lengthens unemployment spells and show that correcting for classification error strengthens the apparent effect of unemployment insurance on spell durations copyright 1995 by mit press

migration with endogenous moving costs we study a dynamic model of labor migration in which moving costs decrease with the number of migrants already settled in the destination this assumption is supported by sociological studies of migrant networks with endogenous moving costs migration occurs gradually over time once it starts it develops momentum and migratory flows may increase even as wage differentials narrow in addition migration tends to follow geographical channels and low moving cost individuals migrate first these patterns are consistent with historical evidence from the great black migration of 1915 1960 in the united states much of which cannot be reconciled with existing migration models excerpt

can you teach old dogs new tricks on complementarity of human capital and incentives abstract contract theory suggests that firm performance can be improved by appointing new managers and or by introducing better incentives furthermore these two changes should be complementary their effects reinforce each other using data on privatized firms in the czech republic this paper presents results that suggest complementarity between the appointment of new managers and introduction of incentives in a transition economy the results also show that ignoring the complementarity may lead to the wrong conclusion that the effect of incentives is weak managerial incentives seem to work only after the new post privatization managers are appointed

equity and bond flows to latin america and asia the role of global and country factors abstract this paper investigates the factors motivating the large capital flows to a number of developing countries in recent years we use monthly us capital flows to nine latin american and nine asian countries to analyze the behavior of bond and equity flows employing a panel data approach we find that although global factors the drop in us interest rates and the slowdown in us industrial production are important in explaining capital inflows country specific developments are at least as important especially for asia we also find that equity flows are more sensitive than bond flows to global factors but that bond flows are generally more sensitive to a country s credit rating and secondary market debt price

global business cycles convergence or decoupling we analyze the evolution of the degree of global cyclical interdependence over the period 1960 2008 using a dynamic factor model we decompose macroeconomic fluctuations in output consumption and investment into a global factor factors specific to country groups and country specific factors we find that during 1985 2008 there is some convergence of business cycle fluctuations among industrial economies and among emerging market economies surprisingly there is a concomitant decline in the relative importance of the global factor we conclude that there is evidence of business cycle convergence within each of these two groups of countries but divergence or decoupling between them

a general equilibrium model of guest worker migration the source country perspective abstract this paper examines the problem of guest worker migration from an economy populated by identical utility maximizing individuals with finite working lives the decision to migrate the rate of saving while abroad as well as the length of a migrant s stay in the foreign country are all viewed as part of a solution to an intertemporal optimization problem in addition to studying the microeconomic aspects of temporary migration the paper analyses the determinants of the equilibrium flow of migrants the corresponding domestic wage and the level of welfare enjoyed by a typical worker effects of an emigration tax are also investigated

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

language fluency and earnings estimation with misclassified language indicators we use panel data to analyze the determinants of speaking fluency and wages of immigrants our model takes account of two problems that may bias ols estimates of the impact of speaking fluency on earnings first subjective variables on an ordinal discrete scale such as self reported language ability can suffer from misclassification errors the model decomposes misclassification errors into a time persistent and a time varying component second the model accounts for correlated unobserved heterogeneity in language and earnings equation the main finding is that these two generalizations of the standard model both lead to substantial changes in the estimated effect of speaking fluency on earnings

procurement and renegotiation parties bound by an incomplete contract have an incentive to renegotiate after acquiring new information the issue of the parties investment in the relationship before renegotiation is analyzed in a simple two period procurement model the firm invests in the first period it then learns its production cost and the sponsor learns its value for the project williamson s underinvestment presumption is shown to hold under very general assumptions about bargaining and about the ex post asymmetry of information as long as the firm s investment is not observable by the sponsor the introduction of a cancellation fee may well lead to even less investment contrary to what is sometimes argued the role of ex ante price fixing as an alternative way to reintroduce some form of commitment and the problem of cost overruns are discussed last it is shown that if investment is observable by the sponsor andthus may become a joint decision variable the two parties may choose to under or overinvest

modelling portfolio capital flows in a global framework multilateral implications of capital controls abstract in the aftermath of the global financial crisis many emerging market countries resorted to capital controls to tackle the excessive surge of capital inflows a number of recent research papers have suggested that the imposition of controls may have imposed negative externalities on other countries by deflecting flows our aim in the research reported in this paper is to assess the efficacy of capital controls and potential deflection effects on other countries by constructing a comprehensive global econometric model which captures the dynamic interactions of capital flows with domestic and global fundamentals the results suggest that capital controls are effective for some countries in the short run but have no lasting effects moreover there is only limited evidence of deflection effects for a small number of emerging market countries

the optimal migration duration and activity choice after re migration if migrants return to their origin countries two questions arise which are of immediate economic interest for both immigration and emigration country what determines their optimal migration duration and what are the activities migrants choose after a return little research has been devoted to these two issues this paper utilises a unique survey data set which records activities of returned migrants we first illustrate the activities of immigrants after returning we show that more than half of the returning migrants are economically active after return and most of them engage in entrepreneurial activities we then develop a model where migrants decide simultaneously about the optimal migration duration and their after return activities guided by this model we specify and estimate an empirical model where the after return activity and the optimal migration duration are simultaneously chosen

common and country specific economic uncertainty abstract we use a factor model with stochastic volatility to decompose the time varying variance of macroeconomic and financial variables into contributions from country specific uncertainty and uncertainty common to all countries we find that the common component plays an important role in driving the time varying volatility of nominal and financial variables the cross country co movement in volatility of real and financial variables has increased over time with the common component becoming more important over the last decade simulations from a two country dsge model featuring epstein zin preferences suggest that increased globalisation and trade openness may be the driving force behind the increased cross country correlation in volatility

sequential migration theory and evidence from peru abstract the standard human capital model of labor migration has been successful in explaining several empirical regularities of the migration process however there are a number of empirical facts that have not yet been explained or empirically tested among them that migrants usually perform more than one move in their lifetime return migration accounts for a very important share of total migration rates and there is a high positive correlation between in and out migration rates in the more advantageous regions this paper presents both a simple model explaining these facts and an empirical analysis using data from peru

self selection and the earnings of immigrants comment in a recent article in this review borias 1987 george borjas uses a standard model of self selection to demonstrate that immigrants in the united states may not necessarily be positively selected as is commonly assumed borjas empirical results based on u s census micro data merged with country of origin characteristics for 41 sending countries however do not provide clear or consistent results with respect to the immigration selection issue although they do confirm earlier findings that the characteristics of the countries of origin of u s immigrants explain a substantial proportion of the differences in their economic status jasso and rosenzweig 1986b the purpose of this note is to show that borjas results are themselves subject to biases due to additional processes of self selection in particular his inconclusive findings with respect to immigration selectivity arise from the use of a choice based sample enlargement of his highly selective sample of countries based on the number of foreign born in the united states yields results that appear to conform much more closely and consistently to conventional wisdom namely that the united states appears to attract those persons with above average skills we also provide evidence that changes in the earnings of aggregate immigrant entry cohorts used by borjas to measure the assimilation of immigrants reflect another evidently important selection process namely selective emigration the effects of country characteristics on the wages of the foreign born at entry immigration selectivity are thus not comparable to the effects of such variables on the changes in the characteristics of an immigrant cohort over time emigration selectivity the effects via immigration self selection of country of origin characteristics on the quality q of immigrants who migrate to a destination country is neatly summarized by borjas in his equation 12 with unobservables determining earnings normally distributed the expected quality of immigrants in the united states is given by

regulation asymmetric information and auditing this article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator by auditing at a cost however the regulator is assumed to be able to observe the realized cost of the firm if the regulator finds that the firm had misrepresented its costs at the time at which prices were set he can order a refund to consumers in the optimal policy the regulator audits when the firm reports for pricing purposes that its costs will be high and orders a refund when the auditfinds that realized costs are lower than anticipated given the original report a separation result that obtains for an important case indicates that the initial pricing decision is independent of the auditing decision the auditing decision however depends on the price that was initially set the optimal auditing strategy is characterized and the nature of the welfare gains are identified the methodology used in the analysis involves the characterization of an equilibrium of a revelation game with an ex post observable

immigrant earnings assimilation estimates from longitudinal data analysis of longitudinal data for immigrants presents a more pessimistic portrait of immigrants economic success first the rate of growth of immigrant earnings was overstated in census based studies second the worsening of immigrant earnings for more recent arrival cohorts is deeper than previously suggested against these two negative findings one must keep in mind an important caveat the steeper cohort decline in earnings may be a sign of greater human capital investment by more recent immigrants longitudinal data suggest a strong degree of earnings convergence immigrants who start at lower earnings quickly make up a large part of the deficit relative to their immigrant counterparts

dynamic labour force participation of married women and endogenous work experience this paper presents and estimates a dynamic model of married women s labour force participation and fertility in which the effect of work experience on wages is explicitly taken into account because current participation alters future potential earnings the investment return to work will be an important factor in the current work decision in any forward looking behavioural model the model is estimated using the national longitudinal surveys mature women s cohort we use the estimates of our model to predict changes in the lifecycle patterns of employment due to changes in schooling fertility husband s income and the magnitude of the experience effect on wages we find that although work experience increases the disutility of further work the effect is overwhelmed by the positive effect of experience on wages leading to persistence in the employment patterns of these women in addition we find that an increase in young children and in husband s income substantially reduces participation while increased schooling has a powerful positive impact on participation this paper presents an estimable structural dynamic model of married women s labour force participation and fertility in which wages are stochastic and work experience or cumulative participation is endogeneous the model is structural in the sense that the parameters which are estimated are contained in the fundamental relationships governing behaviour namely the utility function and the constraints the model is contained in the class of models which describe the life cycle capital accumulation process with endogeneous labour supply such as weiss 1972 and heckman 1976 it is closest in spirit to that of weiss and gronau 1981 1 the basic feature of their model and ours is that labour market participation affects future wages which then affects future participation the investment return to current work will necessarily be taken into account in any forward looking optimizing model as weiss and gronau note estimates of labour supply models have ignored the inherent behavioural dynamics associated with a positive wageexperience profile there is no adequate empirical treatment of the human capital investment dimension of the labour force participation decision in the literature heckman and willis 1977 have studied a sequential discrete choice model of the labour force participation of married women in a reduced form framework their work

the new wave of private capital inflows push or pull abstract this paper studies the determinants and sustainability of the widespread private capital inflows to middle income countries after 1989 the key question is whether these flows are mostly pulled by attractive domestic conditions or pushed by unfavorable conditions in developed countries an analytical model focusing on country risk is developed and used empirically it is argued that the observed improvement in country creditworthiness is mostly due to the decline in international interest rates and that therefore its importance as a proximate cause does not support the pull interpretation all things considered in most countries the key answer that emerges is push

the transmission of international shocks to the uk estimates based on a time varying factor augmented var the aim of this paper is to gauge the importance of foreign demand supply and interest rate shocks on the uk economy and assess how their role has changed over time to that end we devise a time varying factor augmented var model that captures the relationship between 17 industrialised countries and the uk and accounts for any temporal evolution in this relationship the response of uk macroeconomic variables to a foreign interest rate shock is estimated to have changed significantly since the early 1990s international demand shocks play an important role in driving world and uk real activity especially during the recent recession

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

the economics of temporary migrations many migrations are temporary a fact that has often been ignored in the economic literature on migration such omission may be serious in that expected migration temporariness can impart a distinct dynamic element to immigrants economic behavior generating possible consequences for nonmigrants in both home and host countries in this paper we provide a thorough examination of the various aspects of temporary migrations that matter for the analysis of economic phenomena we demonstrate the extent of temporary migrations in population movements we show how temporariness can affect the various economic choices and how better data have improved both the measurement of nonpermanent migrations and the analyses of various aspects of migrant behavior we propose a general theoretical framework for modeling temporary migration decisions based on which we outline the various motives for temporariness while simultaneously reviewing related literature and available data sources we discuss the possible consequences of migration temporariness for nonmigrants in both home and host countries jel f22 f24 j11 j61 k37 o15

the transmission of international shocks a factor augmented var approach the empirical literature on the transmission of international shocks is based on small scale vars in this paper we use a large panel of data for 17 industrialized countries to investigate the international transmission mechanism and revisit the anomalies that arise in the empirical literature we propose a factor augmented var favar that extends the model in bernanke boivin and eliasz 2003 to the open economy the main results can be summarized as follows first the dynamic effects on the uk economy of an unanticipated fall of short term interest rates in the rest of the world are real house price inflation investment gdp and consumption growth peak after one year wages peak after two years cpi and gdp deflator inflation peak during the third year second a positive international supply shock makes the distribution of the components of the uk consumption deflator negatively skewed third in response to a domestic monetary shock we find no evidence of the exchange rate and liquidity puzzles and little evidence of the forward discount and price anomalies

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

cartel enforcement with uncertainty about costs what cartel agreements are possible when firms have private information about production costs in order for a cartel agreement to work it must take into account the incentives for firms to misrepresent their cost information and it must provide sufficient reward so that no firm wishes to defect for private cost uncertainty we characterize the set of cartel agreements with side payments that can be supported as bayesian nash equilibria we show that if defection results in either cournot or bertrand competition the incentive problems in large cartels are severe enough to prevent the cartel from achieving the monopoly outcome in contrast with common cost uncertainty the incentive problems become less severe in large cartels allowing perfect collusion

a life cycle model of outmigration and economic assimilation of immigrants in germany this paper estimates a structural dynamic life cycle model of outmigration where in each period immigrants choose whether to work in the host country not to work but remain in the host country or outmigrate the model incorporates several features of existing life cycle theories of outmigration but distinguishes itself by introducing uncertainty in about future earnings and preferences which allows immigrants to revise their duration decisions throughout their migration experience because immigrants simultaneously face a migration and a work decision in each period the economic assimilation rates commonly used to assess the performance of immigrants in the host economy are endogenously determined and estimated a feature previously ignored in the literature we overcome the problem of not directly observing outmigration movements by using panel attrition as a proxy variable and use a simple method to correct for the fact that part of the attrition is not a consequence of outmigration estimates are used to predict changes in life cycle patterns of outmigration behavior estimation results indicate that outmigration does not depend exclusively on earnings differentials estimated assimilation rates are found to be robust to selection effects immigrants are found to be forward looking decision makers and simulations show that predicted migration durations are very sensitive to changes in their economic environment and differ considerably from those of a myopic model

global economic divergence and portfolio capital flows to emerging markets this paper studies the role of global and regional variations in economic activity and policy in developed world in driving portfolio capital flows pcfs to emerging markets ems results suggest that pcfs to ems depend mainly on economic activity at the global level and monetary policy in america and asia positively on the former and negatively on the latters pcfs are procyclical with respect to global activity but countercyclical to regional activity in aggregate regional variations contribute more than global variations this implies that economic divergence in the developed world can have significant effects on ems via pcfs

capital flows to developing countries long and short term determinants this article focuses on the determinants of the large portfolio flows from the united states to latin american and asian countries during 1988 92 cointegration techniques reveal that both domestic and global factors explain bond and equity flows to developing countries and represent significant long run determinants of portfolio flows the article also investigates the dynamics of portfolio flows by estimating seemingly unrelated error correction models global and country specific factors are equally important in determining the long run movements in equity flows for both asian and latin american countries while global factors are much more important than domestic factors in explaining the dynamics of bond flows u s interest rates are a particularly important determinant of the short run dynamics of portfolio especially bond flows to developing countries copyright 1997 by oxford university press

enterprise performance and management turnover in the czech republic abstract we study the effect of management turnover on changes in enterprise performance using a cross section of 706 czech firms over the 1993 1997 period controlling for initial conditions equity holdings by managers and firm and sector specific effects we find that the appointment of new managers is associated with improvements in profit margins and labor productivity particularly if those managers were selected by private owners the results highlight the importance of human capital in transition economies in bringing about improvements in corporate performance

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

tackling the european migration problem this paper will begin by examining the historical pattern of migration and the empirical dimension of western europes migration problem a next step examines the labor market issues and impacts on natives as western europe perceives them the paper concludes with a discussion of policy issues and options excerpt

labor mobility of immigrants training experience language and opportunities summary statistics observations percent mean sdschooling 419 14 58 2 74age on arrival 419 38 05 9 15white collar in fsu 284 67 78 blue collar in fsu 127 30 31 did not work in fsu 8 1 91 married 363 86 63 english 419 1 76 0 94hebrew before migration 50 11 93 ulpan attendance 386 92 12 ulpan completion 332 79 24 ulpan length months 387 5 61 1 34hebrew1 rst survey 419 2 71 0 82hebrew2 second survey 316 2 98 0 83t able a2 transitions between the labor market states quarters 8 9quarters 3 4 wc bc wt bt ue obs wc 79 57 10 75 3 23 2 15 4 30 93bc 2 58 80 80 1 72 2 87 12 03 349wt 51 28 28 21 0 00 0 00 20 51 39bt 23 81 52 38 0 00 0 00 23 81 21ue 18 93 47 93 6 51 1 78 24 85 169quarters 14 15quarters 8 9 wc bc wt bt ue obs wc 90 52 6 90 0 00 0 86 1 72 116bc 4 56 90 88 0 35 0 70 3 51 285wt 41 18 41 18 0 00 0 00 17 65 17bt 25 00 66 67 0 00 0 00 8 33 12ue 23 86 44 32 0 00 0 00 31 82 88quarters 18 19quarters 14 15 wc bc wt bt ue obs wc 96 72 3 28 0 00 0 00 61bc 2 47 90 12 2 47 4 94 81wt bt 0 00 100 00 0 00 0 00 1ue 30 00 20 00 0 00 50 00 10

a model of the demand for investment banking advising and distribution services for new issues this paper presents a theory of the demand for investment banking advising and distribution services for the case in which the investment banker is better informed about the capital market than is the issuer and the issuer cannot observe the distribution effort expended by the banker the optimal contract under which the offer price decision is delegated to the better informed banker in order to deal with the adverse selection and moral hazard problems resulting from the informational asymmetry and the observability problem is characterized the model demonstrates a positive demand for investment banking advising and distribution services and provides an explanation of the underpricing of new issues an investment banker performs three functions which may be of value to an issuer of new securities underwriting advising and distribution this paper presents a theory of the demand for investment banking advising and distribution services based on an informational asymmetry between an issuer of new securities and an investment banker ultimately a theory of the organization of the financial intermediary industry is required that would predict which firms would use which types of financial intermediaries for which purposes and which firms would raise capital without engaging the services of a financial intermediary only a limited set of such predictions are developed here in the context of a model of a fixedprice offering under a negotiated contract in which the investment banker is

competition and regulation in vertically related markets in an industry where naturally monopolistic and competitive activities are vertically related should the natural monopolist be allowed also to operate in the deregulated competitive sector unlike much of the literature on vertical integration this paper assumes that monopoly pricing behaviour is regulated and therefore the effect of vertical integration on the task of regulation is central to the analysis in the model there is both imperfect information and imperfect competition when vertical integration by the monopolist is allowed the regulator s task is made harder insofar as the monopolist has anticompetitive incentives to raise rivals costs on the other hand integration may lead to there being fewer firms in the deregulated sector and hence less duplication of fixed costs the overall welfare comparison between separation and integration is ambiguous as two simple examples illustrate various extensions to the analysis are also considered one of the central questions in debates on regulatory reform is how to organize industries that contain both naturally monopolistic and potentially competitive activities electricity transmission and distribution are characterized by natural monopoly cost conditions but electricity generation is not in the gas industry pipeline services may be naturally monopolistic but supply to larger customers is not in telecommunications natural monopoly is more a feature of local network operations than of long distance operations and is not present in apparatus manufacture and supply or in the provision of value added services in railways while the infrastructure of track and stations is naturally monopolistic the supply of train services might not be policy developments notably those associated with privatization in britain and deregulation in the united states have sometimes led to radical structural reform in these industries at t for decades a vertically integrated monopolist was required under the 1982 settlement of its long running antitrust case against the u s government to divest itself of its local network operations the central electricity generating board cegb in england and wales was restructured both vertically transmission grid activities were separated from generation and horizontally before privatization in 1990 1991 by contrast british telecom was privatized as a vertically integrated dominant firm bt now faces competition from mercury and others especially in the long distance market but its dominance of local network operations might affect competition there and in other areas such as apparatus supply the local network monopoly would of course have to be regulated in any event but its link via ownership to vertically related and potentially competitive activities poses additional regulatory questions many of the efforts of the regulatory body oftel notably in relation to interconnection between bt s and rivals 1 for a general account of the theory and british experience of regulatory reform in the utility industries

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

the surge in capital inflows to developing countries an analytical overview after being excluded from world capital markets during the debt crisis many developing countries have experienced large capital inflows during the past five years the challenges that these inflows pose for domestic policy in recipient countries have generated a substantial literature this article presents an overview of that literature describing the characteristics of the new inflows analyzing the policy issues they raise assessing their causes and likely sustainability and evaluating potential policy responses the desirable policy response is tied to characteristics of the flows themselves as well as to the characteristics of the recipient economy

estimating the impact of immigrants on the host country social security system when return migration is an endogenous choice in this paper i examine the impact of immigrants on the social security system in germany when return migration is an endogenous choice for this purpose i develop a dynamic stochastic model of joint return migration and saving decisions that accounts for uncertainty in future employment and income and estimate this model using a longitudinal dataset on immigrants from five different source countries i find that immigrants make positive net contributions to both the pension and unemployment insurance systems in germany regardless of their country of origin and age at entry moreover the magnitudes of the net contributions are remarkable for certain groups return migration plays a critical role in generating these positive net contributions in a counterfactual i examine how much exogenous modeling of the return decision which has been the practice of the literature so far changes immigrants net contributions such a restriction causes a serious misestimation of net contributions i also examine the impact of a counterfactual policy experiment in which financial bonuses are provided conditional on return to certain unemployed immigrants such a policy turns out to be ineffective in a number of dimensions