who withdraws housing equity and why the decision to extract home equity is examined using household level data for the uk over 1993 2003 at its peak during the period around 1 in 10 homeowners withdraw equity per year little is known about this financial decision i find that the equity withdrawal decision conforms to predictions from the standard life cycle framework and models that predict its use as a financial buffer the paper also estimates responses to the large house price appreciation and significant reductions in mortgage rates seen during the period

understanding differences in household financial wealth between the united states and great britain in this paper we describe the household wealth distribution in the united states and united kingdom over the past two decades and compare both wealth inequality and the form in which wealth is held unconditionally there are large differences in financial wealth between the two countries at the top fifth of the wealth distribution even after controlling for age and income differences between the two countries we show that the median u s household accumulates more financial wealth than their united kingdom counterpart does we explore a number of alternative reasons for these differences and reject some explanations as implausible some of the observed differences are due to what we refer to as initial conditions in particular previously high rates of corporate equity ownership in the u s and housing ownership among young british households this only provides a partial explanation however among other explanations are differences in the annuitization of retirement incomes and in the amount of wealth held in the form of housing equity in the first case forced and voluntary annuitization in the united kingdom mean older households face considerably less longevity risk in the second higher house price volatility in the united kingdom can create an incentive as shown banks blundell and smith 2002 used from stock market equity earlier in the life cycle

agent compensation and the limits of bonding agents in positions of trust may engage in malfeasance which is difficult to detect this paper develops a model in which employers seek to control malfeasance by paying wages contingent on imperfect monitoring and agents may be required to pay entry fees or post bonds we conclude that entry fees which exceed agents assets are ineffective in controlling malfeasance as a result conditions exist in which it is optimal to pay agents more than their opportunity cost such conditions lead to an excess supply of applicants and allow employers to engage in discrimination at zero cost to themselves

egalitarianism and the returns to education during the great transformation of american education secondary school education greatly expanded in the united states from 1910 to 1940 setting its schooling attainment apart from that of all other countries barely 10 percent of youth were high school graduates in 1910 but by the mid 1930s the median youth had a high school diploma in some regions by the 1930s enrollment and graduation rates rose to levels that were as high as they would be two decades later the issue addressed here concerns the economic impact of the large increase in the supply of educated labor evidence is presented concerning the sharp decline in the wage premium to ordinary white collar workers with the expansion of the high school large numbers of americans competed for positions in the coveted white collar sector although the return to a year of high school remained considerable on the eve of world war ii egalitarianism had evened the playing field for a substantial segment of americans

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

implicit understandings in channels of distribution formal agreements can be used to achieve coordination among channel members these agreements work by exerting explicit control over the members who make the agreements however implicit understandings can be used as a partial substitute for more formal agreements in this paper we show that implicit understandings can develop as channel members learn about each other s behavior we show that this learning leads to the use of the implicit influence each channel member has over the other s behavior the learning leading to an implicit understanding requires some form of experimentation or historical observation this learning results in an oscillating retail price when only one channel member learns the other s behavior both channel members obtain greater profits than when neither member learns and both channel members obtain less profits than when both members learn however the member who does not learn obtains more profits than the member who learns we also show that implicit understandings r

control techniques and upward flow of information in franchising in distant markets conceptualization and preliminary evidence abstract information exchange between franchisees and franchisors is viewed as instrumental for the attainment of both firm specific and systemic goals within franchise systems our study investigates the issue of control and control techniques employed by franchisors to monitor the performance of their franchisees in distant markers with special focus on the role of information exchange a major assumption underlies our work even though in the language of agency theory franchise contracts attempt to align the incentives of the principal i e franchisor and the agent i e franchisee such alignment is not easy to achieve due to basic conflicts in the parties respective goals for instance while franchisees are primarily interested in achieving short term profits franchisors are more concerned about strengthening the brand equity of their systems a perfect upward flow of information i e from franchisees to franchisors therefore is not necessarily guaranteed this paper introduces and empirically evaluates four hypotheses relating franchisees willingness to provide information to their respective franchisors first it is suggested that franchisees willingness to provide information to their franchisors will be positively related to the incidence of repeat purchases since incentives to free ride are expected to be low at such units in repeat customer industries hence franchisees will have little incentive to hide information second it is argued that the greater the age of relationship between the focal franchisee and franchisor the more secure both parties are likely to feel about the projection of this relationship into the future consequently a positive relationship between the age of the franchise relationship and franchisees willingness to provide information to franchisors is proposed next we suggest that the level of competition faced by franchisees is positively related to franchisees willingness to provide information to their franchisors the latter effect is expected for two reasons foremost such franchisees are likely to see the availability of authentic market information as a necessary tool for their franchisors if franchisors are to provide them with accurate localized advice for combating competitive forces second from an agency theory perspective franchisees have an incentive to conceal information about the external environmental factors only if such information serves to explain franchisees business success in terms of forces other than their effort this would not occur in a competitive environment setting finally multi unit franchisees are hypothesized to more willingly provide information to their franchisors than their single unit counterparts given their lower incentives to free ride and the higher level of security felt in their relationships with their franchisors the empirical verification of our contentions was carried out in two stages first we studied in depth the case of lebanon to develop the initial descriptive materials second and based on the first step we surveyed u s based franchisors with franchisees in the middle east and africa to assess our hypotheses results show that while the extent of competition faced by franchisees was found to be an incentive to provide information to franchisors the age of the relationship emerged as a disincentive to sharing information with the franchisors

risk perceptions endogenous demand and regulation of agricultural biotechnology abstract this paper presents a dynamic model of optimal product regulation in which consumer acceptance and the rate of product innovation are included as endogenous variables insights derived from the model are used to critically evaluate recent policy controversies regarding regulation of agricultural biotechnology the results of the analysis indicate that if regulatory policy significantly affects consumer risk perceptions more stringent regulatory requirements than those based solely on scientific risk assessment may be economically efficient when demand is endogenously affected by regulatory policies industry may also benefit from stronger regulations even if this results in a significant increase in product development costs

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

house price shocks and household indebtedness in the united kingdom we use household panel data to explore the link between changes in house prices and household indebtedness both secured on housing assets and unsecured in the united kingdom we show that households which are borrowing constrained by a lack of housing equity as collateral make greater use of unsecured debt such as credit cards or personal loans in response to rising house prices which relax this constraint such households are more likely to refinance and to increase their indebtedness relative to unconstrained households however for most households house price movements appear to have little impact on indebtedness

specific human capital and sorting mechanisms in labor markets three major avenues of research on employment contracts which incorporate asymmetric information have been pursued first researchers have considered contracts in which the supply of employee effort is costly to monitor 3 8 9 12 second the allocation of labor has been examined when innate person specific characteristics are unobservable 4 5 14 15 third employment contracts have been designed when economic agents are uncertain about the state of nature concerning the worker s marginal product and the employee s reservation wage 6 7 this research agenda has provided an elaborate array of models which yield employment contracts that reduce the distortionary effects of asymmetric information however these models have two major short comings first under uncertainty concerning personspecific information employers have an incentive to screen employees the existing literature has analyzed two distinct screening mechanisms guasch and weiss 4 5 consider screening through wages while white 15 has considered screening through specific human capital however each mechanism has been analyzed in isolation the present paper combines these screening mechanisms and examines the impact of each upon the optimal employment contract second although the existing literature on employment contracts offers a general framework for analysis it is not directly amenable to empirical verification the present paper rectifies these short comings by developing a model which incorporates both screening mechanisms under asymmetric information and thereby provides a model conducive to empirical verification in our analysis three major simplifying assumptions are made first because we assume employees have no choice regarding the effort they supply we abstract from the agency problem discussed in the literature cited above second we assume employees differ in their innate person specific characteristics the latter is assumed to be observed by

entry and exit decisions in flexible teams the present study identifies a major limitation of current research on multinational enterprises mnes joint decision making in a distributed setting is of critical importance in practice but has received little attention in our theories to address this gap in knowledge we examine the effects of flexible decision teams when mnes assess turbulent markets remarkably flexible teams composed of fallible evaluators can outperform what is usually thought of as an optimal decision our main result supports the claims advanced in recent empirical studies structural flexibility can help mnes achieve high levels of performance even in conditions of turbulence

the impact of franchising on labor standards compliance recent studies document pervasive noncompliance with basic labor standards in industries with high concentrations of low wage workers the authors examine how franchising a common form of business organization in low wage industries affects compliance they estimate the effect of franchise ownership on compliance with federal minimum wage and overtime standards in the fast food industry using unique data on top 20 branded restaurants franchised outlets have far higher levels of noncompliance than comparable company owned establishments the authors argue that observed differences arise from internal incentives facing franchisees versus franchisors rather than from external enforcement pressures facing the parties

inter vivos transfers and bequests in three oecd countries reforms reducing the generosity of pensions have distributional effects on future generations if individuals care about their descendants welfare but only affect elderly individuals if bequests are the unintentional result of precautionary savings and safety net programmes such as unemployment insurance may displace sources of private help such as that provided by living parents to their children in need this paper provides comparable measures of how expected bequests and transfers vary with cumulated parental earnings in the united states west germany and the united kingdom the strength of bequest motives is empirically very weak in the available data private inter vivos transfers which appear to depend on the recipients economic situation are partly crowded out by public unemployment insurance programmes together involuntary bequests and intentional inter vivos transfers appear to be an important channel of intergenerational inequality transmission and strengthen substantially the relationship between an individual s and his parents economic status ernesto villanueva

exclusive territories and manufacturers collusion this paper highlights the rationale for exclusive territories in a model of repeated interaction between competing supply chains we show that with observable contracts exclusive territories have two countervailing effects on manufacturers incentives to sustain tacit collusion first granting local monopolies to retailers softens competition in a one shot game hence punishment profits are larger thereby rendering deviation more profitable second exclusive territories stifle deviation profits because retailers of competing brands adjust their prices to the wholesale contract offered by a deviant manufacturer whereas intrabrand competition prevents such instantaneous reaction we show that the latter effect tends to dominate thereby making exclusive territories a more suitable organizational mode to cooperate these insights are robust to endogenous communication between manufacturers we also consider retailers service investments here a novel effect emerges that softens the procollusive value of exclusive territories retailers of a deviant manufacturer increase investments which renders deviation more profitable this paper was accepted by preyas desai marketing

strategic decentralization in channels the purpose of this paper is to understand the effect of strategic interaction on a manufacturer s channel structure decision in the model i analyze if there were no strategic interaction then the manufacturer would prefer vertical integration to decentralization with strategic interaction however decentralization can be a nash equilibrium strategy as mcguire and staein mcguire timothy richard staelin 1983a an industry equilibrium analysis of downstream vertical integration marketing sci 2spring 161 192 showed so the question arises what is it about strategic interaction that makes decentralization a nash equilibrium strategy the answer i give is that strategic interaction makes it possible for a manufacturer s retail demand curve to rise when he decentralizes i show that this raising of the demand curve on decentralization can happen only if one of the following mutually exclusive conditions is satisfied 1 the manufacturers products are demand substitutes at the retail level and strategic complements at the manufacturer or retailer levels 2 the manufacturer s products are demand complements at the retail level and strategic substitutes at the manufacturer or retailer levels strategic complementarity at the retailer manufacturer level means that if one retailer manufacturer raises his price then the other retailer manufacturer would raise his price as well strategic substitutability is just the opposite these results show that what is important for decentralization to occur is not how demand substitutable the two manufacturers products are as one might have thought from earlier works in the literature but rather the nature of coupling between demand dependence and strategic dependence

indirect network externality effects on product attributes indirect network externality ine effect exists when the utility of a product increases with the greater availability of compatible complementary products we demonstrate that ine effects can vary by product attributes with externality sensitive attributes gaining more from increased availability of complementary products than other attributes past research has assumed that the benefit of increased availability of complementary products e g software accrues to theentireproduct e g hardware utilizing data covering a period from 1985 to 1995 on compact disc player prices attributes and cd titles releases and using a hedonic price approach we find significant positive interactions between cd title availability and two attributes of the cd player namely changer capacity and its oversampling rate in addition to ine attribute interactions increased availability of cd titles is found to have a significant positive impact on the overall price of cd players which is consistent with past research collectively these effects of ine have helped reduce the yearly decline in the price of cd players the finding that ine effects differentially affect different attributes can help managers in decisions such as pricing timing of introduction and changing the levels of ine sensitive attributes

individual team incentives and managing competitive balance in sports leagues an empirical analysis of major league baseball abstract major league baseball and other professional sports leagues have long been concerned with competitive imbalances caused by differences in local revenues the fear is that in the absence of salary caps or other regulatory mechanisms smaller market teams will be unable to remain competitive this research uses a structural dynamic programming model to analyze ownership s payroll investment decisions this model estimates the relationship between optimal payrolls and local market populations and the influence of long term customer equity dynamics on payroll investments in addition the author analyzes the impact of a recent policy intervention that implemented revenue transfers from high local revenue markets to low local revenue markets the statistical results indicate that market population has a significant impact on the value of a team s payroll investments for example optimal payrolls double as the population increases from 2 5 million to 7 5 million furthermore rather than improving com

nirvana efficiency a comparative test of residual claims and routines two widely adopted views of firm efficiency are agency theorists residual claims and organization theorists routines the agency view holds that ownership structures and their proxies are the primary source of efficiency differences between firms the organization theory view holds that organizational routines are the primary source of efficiency differences between firms we conduct an empirical test that compares the relative value of residual claims and routines in generating firm efficiency while controlling other factors we find support for both views but more importantly find that the average value of routines is roughly an order of magnitude higher than residual claims 1999 elsevier science b v all rights reserved jel classification l 2

adoption transfers and incentives in a franchise network with positive externalities we study franchise arrangements that allow franchisees with exclusive territories to own their customers this permits franchisees to benefit from positive externalities in the franchise network through interfranchise transfers based on the purchases by their customers at other franchises on the network using the structure of a single franchisor and many franchisees we show that in general interfranchise transfers between franchisees and incentives for franchisee investment in the expansion of their customer base are critical both to the size and to the benefits derived from the franchise network specifically we find that when individual franchisees make investments in marketing effort to increase their customer base the franchisor s setting of the interfranchise transfer trades off the positive effects on network size with the negative effects of removing franchisee incentive for investment this result is due to the fact that interfranchise transfers encourage adoption but discourage full investment in marketing effort as compared to first best franchisee investment use of the royalty and the inter franchise transfer directly dissipates franchisee profits and indirectly dissipates franchisee profits through less than universal adoption thereby causing franchisees to underinvest as compared to traditional franchise systems however use of the interfranchise transfer results in franchises making greater investments than they otherwise would

improving channel coordination through franchising in this paper we explore the role of franchising arrangements in improving coordination between channel members in particular we focus on two elements of the franchising contract namely the royalty structure and the monitoring technology we begin with a simple analysis where a manufacturer distributes its product through a retailer and the retail demand is affected by the retail price and the service provided by the retailer in this context we show that neither royalty payments nor monitoring are needed for full coordination we then extend the model to allow for free riding by franchisees and show that although monitoring helps affect the behavior of the franchisees royalty payments are still unnecessary to coordinate the activities of the franchisor and the franchisees finally we show that in environments where factors affecting retail sales are controlled by both the franchisor and the franchisee royalty payments provide the necessary incentives for the franchisor while monitoring systems are used to ensure that franchisees also behave in the best interest of the channel our general results are found to be consistent with those in brickley and dark 1987 and norton 1988 who conclude that franchising is affected by principal agent problems our theory finds special support in the work of lafontaine 1988 where it is concluded that the incidence of franchising is related to cost of monitoring and the importance of franchisor investments

moral hazard asset specificity implicit bonding and compensation the case of franchising i introduction there is a large and growing interest in the structuring of compensation to deal with the moral hazard problem much of this literature treats various forms of income sharing such as piece rates and sharecropping as a means for a principal to provide incentives to an agent this literature has been extended to the case of two sided moral hazard where both parties to an exchange may shirk another mechanism to induce effort discussed in the literature is bonding where workers post a bond that is forgone if effort is inadequate klein 1980 and klein and leffler 1981 treat the possibility of specific assets as constituting an implicit bond where poor performance by a firm is penalized by bankruptcy and sale of assets at a loss this paper studies a situation where these issues coalesce the case of compensation arrangements in franchising the typical franchise contract calls for the sharing of franchise income between franchisee and franchisor additionally franchisees may be terminated for poor performance if franchise assets have a degree of specificity the ensuing sale of assets at a loss provides a penalty for poor performance we examine the determinants of franchise royalty rates and fees in this setting while there is a literature on two sided moral hazard and some empirical work on franchising based on this idea none incorporates the potential influence of asset specificity we explicitly consider the role of implicit bonding and asset specificity in conjunction with moral hazard on the part of both trading parties we go beyond previous work in franchising by estimating the effects of asset specificity and other influences on the royalty rate further part of our empirical work utilizes improved micro data on actual franchise contracts our approach and its implications are discussed in section ii consistent with previous work we expect the royalty rate to decrease increase as the importance of the franchisee s franchisor s input increases however more specific capital with the threat of termination acts as an implicit bond and substitutes for a reduced royalty rate in inducing franchisee effort thus we expect royalty rates to increase with asset specificity also unlike other approaches we do not necessarily expect an inverse relationship between the royalty rate and the franchise fee for example the greater the importance of franchisor effort the higher the royalty rate but the franchise fee may also increase if franchise revenue rises by enough our hypotheses are tested using two different data sets an original firm level data set is taken from federal trade commission ftc required uniform franchise offering circulars ufoc 1 in addition data are obtained from bond s 1989 the source book of franchise opportunities the data are discussed and the results presented in section iii we find substantial support for our approach for example factors that increase the importance of the franchisee s effort such as the number of employees supervised lower the royalty rate and increase the franchise fee also a reduction in the specificity of the franchisee s investment due to leasing lowers the royalty rate and raises the franchise fee 2 section iv summarizes our findings and concludes the paper ii the approach and the hypotheses the typical franchising contract consists of a two part payment by the franchisee to the franchisor the franchisee pays an up front nonrefundable franchisee fee and a continuing royalty payment usually a percentage of sales in return the franchisee receives the right to use the franchisor s brand name capital and a method of operation in addition the franchisor provides on going support to the franchisee however the franchisor maintains the right to unilaterally terminate the contract if the franchisor determines that the franchisee is not delivering a product consistent with the quality guaranteed by the brand name

centralized and decentralized contracts in a moral hazard environment we study the optimal allocation of the contracting capacity in a moral hazard environment centralizing is superior when the principal is able to establish all the contracts with the agents simultaneously and she is able to monitor side contracting between the agents otherwise decentralizing can be a superior strategy we apply our results to a firm s decision on which outlets to franchise they suggest that franchising is more likely to occur the further the store is from headquarters the more isolated it is and in those activities where the risk is low this conclusion is consistent with empirical studies

risk pooling precautionary saving and consumption growth in this paper we model the evolution of income risk and consumption growth we decompose the time series innovation of the income process into its common and cohort specific components from these we compute conditional variances which are used as separate risk terms in a consumption growth equation using a long series of british household data we exploit the time series variation to identify precautionary saving effects and find strong evidence of their importance specifically after allowing for demographic and labour market status there is an independent role for income risk in explaining consumption growth rather than the component that is common across cohorts however it is the cohort specific element that is important in determining changes in consumption growth this result points to a failure of between cohort insurance mechanisms

the tenuous trade off between risk and incentives empirical work testing for a negative trade off between risk and incentives has not had much success the data suggest a positive relationship between measures of uncertainty and incentives rather than the posited negative trade off i argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees when workers operate in certain settings firms are content to assign tasks to workers and monitor their inputs by contrast when the situation is more uncertain they delegate responsibility to workers but to constrain their discretion base compensation on observed output

housing mobility and downsizing at older ages in britain and the united states this paper examines geographic mobility and housing downsizing at older ages in britain and the usa americans downsize housing much more than the british largely because americans are much more mobile the principal reasons for greater mobility among older americans are twofold 1 greater spatial distribution of geographic distribution of amenities such as warm weather and housing costs 2 greater institutional rigidities in subsidized british rental housing providing stronger incentives for british renters not to move this relatively flat british housing consumption with age may have significant implications for the form and amount of consumption smoothing at older ages

an empirical look at franchising as an organizational form franchise contracts are identified as a hybrid form of economic organization motives for the dominance of franchise arrangements are identified by examining the theoretical literature on franchising and related literatures on the theory of the firm firm growth managerial and employee selection a nd brand name capital empirical tests are performed on the incidence of franchise contracts across states for three industries in which f ranchising is prominent and data are readily available the results s uggest that both principal agent incentives and informational incenti ves favor the use of franchise arrangements copyright 1988 by the university of chicago

optimal sharing of foodborne illness prevention between consumers and industry the effect of regulation and liability consumers and the food industry can both prevent foodborne illness two questions are explored what is the socially optimal level of preventative effort by each and can tort and regulatory instruments induce such behavior analysis is complicated by two aspects of food safety technology one party s effort can affect the marginal effectiveness of the other party s effort and damage functions can be nonconvex previous analysis of accidents under torts and regulation fails to consider these generalizations indeed results concerning the ability of tort and regulatory instruments to induce first best and second best behavior often contradict previous results in the literature

information technology and organization design locating decisions and information we study the impact of information technology it on the profitability of individual organization designs and on the relative profitability of different organization designs we develop models where organization design is defined by the location of investment decision authority we consider global and local investment when there is an information asymmetry between a central authority and decentralized nodes decentralized nodes make better local investment decisions because of their local knowledge we define three separate organization designs a hierarchy where all investments are made by a central authority a market where all investments are made by the decentralized nodes and a mixed mode where global investments are made by a central authority and local investments are made by decentralized nodes because of complementarities between global and local investment we show that there is under investment relative to first best in all three organization designs we also find that it can be used to mitigate that underinvestment either by bringing information to the decision maker or by redesigning the monitoring and incentive structure we demonstrate that it does not necessarily favor decentralized organization designs and we show how the costs of coordination may resultin the mixed mode being dominated by one or both of the alternative organization designs thus collocation of investment decision rights and information that results in decisions that require coordination might not be optimal when the costs of not synchronizing global and local investment are high

new firm survival institutional explanations for new franchisor mortality why do some new firms succeed and others fail economists argue that new firms fail because entrepreneurs inefficiently manage production and organizational design williamson 1985 sociologists e g granovetter 1985 have typically viewed this explanation as undersocialized and argue that institutional legitimacy must also be considered to explain the survival of new firms this paper examines the survival of 1292 new franchisors established in the united states from 1979 1996 the results show that institutional legitimacy adds to economic explanations for the survival of new franchisors and suggests the importance of a properly socialized explanation

the effects of new franchisor partnering strategies on franchise system size many young firms use strategic actions to attract partners who help them increase the size of their operations quickly this article examines the use of strategic actions to attract partners and increase system size in the context of franchising we build on research in entrepreneurship marketing organization theory strategic management and finance to develop specific hypotheses about the influences of franchisor pricing policy and strategic control decisions on system size we test these hypotheses empirically using panel data on a sample of 1 292 business format franchise systems from 152 industries that were established in the united states between 1979 and 1996 and followed from their inception forward in time our model accounts for the endogeneity of strategic decisions controls for unobserved firm and industry factors and accounts for selection effects due to system failure the results show that franchisors that grow larger 1 lower royalty rates as the systems age 2 have low up front franchise fees that rise over time 3 own a small proportion of outlets and lower that percentage over time 4 keep franchisees initial investment low and 5 finance their franchisees

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

older or wealthier the impact of age adjustment on wealth inequality differences in individual wealth holdings are widely viewed as a driving force of economic inequality however as this finding relies on cross sectional data a concern is that older is confused with wealthier we propose a new method to adjust for age effects in cross sections which eliminates wealth inequality due to age yet preserves inequality arising from other factors using a new cross country comparable database we examine the impact of age adjustments on wealth inequality across countries and over time we find that the most widely used method yields a substantially different picture of age adjusted wealth inequality than our method 2011 the editors of the scandinavian journal of economics

comment managing channel profits comment in a recent paper in this journal jeuland and shugan jeuland a s shugan 1983 managing channel profits marketing sci 2 summer 239 272 proposed a quantity discount schedule as a way of coordinating a channel as they put it on p 253 of their paper a quantity discount schedule which would fix the retailer s and hence the manufacturer s profits to some fixed linear function of total channel profits would lead the channel to maximize profits the purpose of this note is to show that a quantity discount schedule is not necessary for channel coordination

the choice of organizational form the case of franchising abstract we examine companies that franchise some units and centrally operate own others the agency problems confronting these two organizational forms are analyzed testable hypotheses are developed the empirical results support the notion that owning versus franchising reflects a trade off among agency related problems the cost of monitoring store managers appears to be especially important in the own franchise decision the level of repeat business and initial investment requirements per unit also appear to be important

systemic failure in the provision of safe food abstract many deficiencies in the capacity of a food system to deliver safe products are systemic in nature we suggest a taxonomy of four general ways in which a systemic failure might occur one relates to the connectedness or topology of the system another arises from mistrust on the part of downstream parties concerning signals on product attributes production processes and the performance of regulatory mechanisms a third arises when asymmetric information leads to low incentives for preserving food quality finally inflexibilities in adapting to different states of nature may leave the system vulnerable to failures innovations in information technology and institutional design may ameliorate many problems while appropriate trade industrial organization science and public infrastructure policies may also fortify the system

the economy of high wages an agency problem latitude with respect to the effort they supply and monitoring of effort and output is costly in this paper we examine the agency problem that arises in these circumstances the agent employee is assumed to maximize expected utility which depends on wages and effort a bad we assume that output is a deterministic function of effort that either effort or output can be accurately monitored and that monitoring is costly the firm s problem is to select a level of monitoring and a compensation package that will minimize the cost of obtaining a desired level of effort given the cost of monitoring the agent s preferences and the agent s opportunity cost of accepting employment with the firm his labour supply constraint the firm chooses a compensation scheme from the set in which compensation is contingent on effort if the agent is monitored and is equal to a standard

food safety and product liability abstract this paper focuses on the u s product liability system for food poisoning cases and makes six key points first current legal incentives to produce safer food are weak though slightly stronger in outbreak situations and in markets where foodborne illness can be more easily traced to individual firms far less than 0 01 of cases are litigated and even fewer are paid compensation second even if potential plaintiffs can overcome the high information and transaction costs necessary to file lawsuits monetary compensation provides only weak incentives to pursue litigation firms paid compensation in 56 of the 294 cases examined in this study and the median compensation was only 2 000 before legal fees third indirect incentives for firms may be important and deserve more research for example firms may be influenced by costly settlements and decisions against other firms in the same industry fourth confidential settlements health insurance and product liability insurance distort legal incentives to produce safer food fifth the ambiguity about whether microbial contamination is natural or an adulterant hinders the legal system from effectively dealing with food safety issues sixth a brief comparison of the incentives from u s and english legal systems suggests that more research is needed to understand the strengths weaknesses and relative impact of each country s legal system on the incentives to produce safer food

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

the effects of state automobile dealer entry regulation on new car prices this paper examines the impact of state regulations restricting entry into new car retailing the central hypothesis is that these regulations create artificial scarcity rents for existing dealers which are collected through higher car prices a reduced form multiple regression model is specified with retail price as the dependent variable the model is estimated using transactions price data for a sample of over 5 000 chevrolet dealers and seven car lines in 1978 the results confirm the hypothesis that entry restrictions cause higher car prices

the economic effects of franchise termination laws we would like to thank blake rhodes and pam schommer for excellent research assistance participants in workshops at arizona state university university of california berkeley the university of chicago dartmouth college iowa state university the justice department the university of rochester and the university of utah as well as jeff coles arnold cowan jim dana franklin m fisher stuart gilson ben hermalin cliff holderness gregg jarrell alan krueger wayne mikkelson walter oi jim poterba ajai singh cliff smith kathy spier david weisbach jamie zender jerry zimmerman and especially kevin j murphy and an anonymous referee for comments on an earlier draft brickley and weisbach thank the managerial economics research center of the university of rochester and the john m olin foundation and dark thanks the college of business at iowa state university for financial support brickley also thanks the garn institute of finance at the university of utah for financial assistance 1 see mark robichaut franchise rules are back off drawing board wall st j july 6 1990 at bl note that in this article we focus on laws that apply to business format franchises for an analysis of state laws in automobile franchising see richard l smith ii franchise regulation an economic analysis of state restrictions on automobile distribution 25 j law econ 125 1982 richard a epstein unconscionability a critical appraisal 18 j law econ 293 314 15 1975 and paul h rubin the theory of the firm and the structure of the franchise contract 21 j law econ 223 1978 other work on the economics of franchising includes james a brickley frederick h dark the choice of organizational form the case of franchising 18 j fin econ 401 1987 james a brickley frederick h dark michael s weisbach an agency perspective on franchising 20 fin mgmt 1991 in

managerial rents and outside recruitment in the coasian firm in the corporation decision making about the use of capital by managers and risk taking by the owners of capital are specialized activities various institutional mechanisms have been analyzed as forces disciplining the opportunistic behavior of management under these conditions we maintain that no single mechanism such as wage revision in the managerial labor market or an internal device that relies on influencing incentives by making executives residual claimants in the firm is sufficient to solve problems of managerial incentives instead the margins of several control devices are extended simultaneously to maximize the value of the firm net of the cost of control in this context we will emphasize one means of managerial control which has not been fully analyzed to date the impact of outside hiring on the behavior of incumbent managers

competition and cooperation in marketing channel choice theory and application this paper discusses the problem of choosing a vertical marketing channel in a product differentiated duopolistic market firms choose product price and the form of the marketing channel to maximize profits it is shown that integration of the marketing function results in greater price competition and lower prices than does the use of independent marketing middlemen the profitability of reducing price competition by using such middlemen is investigated two hypotheses that integration is negatively associated with the products substitutability and that symmetric channel structures are stable are tested in a preliminary way and supported with survey data from the international semiconductor industry

implementable mechanisms to coordinate horizontal alliances unprecedented changes in the economics of interaction mainly as a result of advances in information and telecommunication technologies such as the internet are causing a shift toward more networked forms of organizations such as horizontal alliances that is alliances among firms in similar businesses that have positive externalities between them because the success of such horizontal alliances depends crucially on aligning individual alliance member incentives with those of the alliance as a whole it is important to find coordination mechanisms that achieve this alignment and are simple to implement in this paper we examine two simple coordination mechanisms for a horizontal alliance characterized by the following features i firms in the alliance can exert effort only in their local markets to increase customer demand for the alliance ii customers are mobile and a customer living in a given alliance member s local area may have a need to buy from some other alliance member and iii the coordination rules followed by the alliance determine which firms from a large pool of potential member firms join the alliance and how much effort each firm joining the alliance exerts in its local market in this horizontal alliance setup we consider the use of two coordination mechanisms i a linear transfer of fees between members if demand from one member s local customer is served by another member and ii ownership of an equal share of the alliance profits generated from a royalty on each member s sales we derive conditions on the distribution of demand externalities among alliance members to determine when each coordination mechanism should be used separately and when the mechanisms should be used together

competition in multiechelon assembly supply chains in this paper we study competition in multiechelon supply chains with an assembly structure firms in the supply chain are grouped into homogenous sectors nodes that contain identical firms with identical production capabilities that all produce exactly one undifferentiated product that may itself be a kit of components each sector may use several inputs to produce its product and these inputs are supplied by different sectors the production process within any sector is taken to be pure assembly in fixed proportions the number of firms in each sector is known the demand curve for the final product is assumed to be linear as are production costs in all sectors competition is modeled via a coordinated successive cournot model in which firms choose production quantities for their downstream market so as to maximize profits given prices for all inputs and all complementary products production quantities for sectors supplying the same successor are coordinated through pricing mechanisms so that complementary products are produced in the right proportions under these assumptions equilibrium prices for any multiechelon assembly network are characterized by a system of linear equations we derive closed form expressions for equilibrium quantities and prices in any two stage system i e a system with multiple input sectors and a single assembly sector we show that any assembly structure can be converted to an equivalent larger structure in which no more than two components are assembled at any node finally large structures can be solved either by direct solution of the characteristic linear equations or through an iterative reduction compression to smaller structures

legal systems institutional environment and food safety in the aftermath of the recent food scares the united states and the united kingdom face major challenges to maintain a safe food system regulators on opposite sides of the atlantic are facing rapid product and process innovations changes in consumption behaviors expansion of international trade and discovery of new food hazards the u k and the u s demonstrate different approaches to manage safety risks this article will focus on two issues the reasons behind the differences in the american and english policy approaches to food safety and how these differences impact u s safety outcomes a comparative legal framework is provided to understand how food safety is elicited in the economy and the incentive implications of the different institutional settings these two different lenses because they differ so teach us about the fundamental sources of safety the u k s prevalent doctrine is parliamentary sovereignty and leads to a regulatory framework while the u s is based on constitutional supremacy and relies on a legal framework the source of safety under a regulatory framework is the government bureaucracy while the u s legal framework provides an important point of departure the constitutional standing of the firm and the consumer we argue that while the u k system is structured to work through a regulatory framework to enhance the supply of safety in the economy the u s system is much less directed the legal system the subject of this article plays an important role not only in discouraging breach but also in acting as a check on the discretionary authority of the regulator in the end the u s and the u k may have equally safe food systems but what differs is the fundamental source of the safety supply the practical implication is that safety in the food system emerges from several sources not just through regulation therefore direct importation of u k style regulatory approaches may not be effective within a u s constitutional setting

is there a retirement savings puzzle in this paper we ask whether households are saving enough for their retirement we use data on income expenditure and expenditure components to analyse patterns of behaviour at and around the time of retirement for successive date of birth cohorts we compare periods of unemployment to periods of retirement and separate expenditures into categories reflecting work related expenditures basic necessities and other goods we find that income typically falls by more at unemployment than retirement but the reverse is true for expenditure we observe falls in expenditure at retirement for all expenditure categories using a stochastic life cycle model including mortality rates we assess the anticipated impact of retirement on consumption against that of unemployment the inter relationship between goods and leisure explains a large part of the persistent fall in expenditure at retirement we argue that the only way in which the life cycle hypothesis could be reconciled with the remaining unanticipated dip in consumption would be with the systematic arrival of unexpected adverse information at the time of retirement

the economics of franchise contracts as an organizational arrangement the franchise contract lies between anonymous price mediated exchange and centralized intrafirm employment in contrast to conventional market exchange franchise contracts typically impose on franchisees retail quality standards common hours of business price controls and nonlinear payment schedules for example fixed initial royalty fees plus a percentage of gross retail revenues while franchisors typically provide national advertising and training programs monitor and inspect the franchisees performance with varying intensity across industries and hold the residual power to terminate the franchise agreement observations of actual terminations indicate that franchisors sometimes exclude this power franchisors sometimes face persistent queues of potential franchisees in contrast to simple employment contracts franchise agreements provide for sharing of profits through royalties on revenue or output and considerable freedom for independent decisions by local franchisees 1 why do these franchise contracts exist