inconsistent voting behaviour in the fomc this article uses transcript data to examine determinants of inconsistent voting behaviour in the federal open market committee fomc in the period 1989 2008 inconsistent voting behaviour occurs

the impact on economic performance of a transformation in workplace relations this study examines how a transformation in patterns of conflict and cooperation affected economic performance in 25 work areas of a large unionized manufacturing facility in the period 1984 87 unlike most studies of industrial relations and economic performance this study clearly distinguishes conflict from cooperation but evaluates the two together rather than focusing on only one an analysis of data collected from union and employer records and interviews strongly suggests that work areas with traditional labor management relations rooted in adversarial assumptions had higher costs more scrap lower productivity and a lower return to direct labor hours worked than work areas with transformational relations characterized by increased cooperation and improved dispute resolution

the new electricity market of singapore regulatory framework market power and competition abstract this study examines whether the new electricity market of singapore nems is functioning at a workable level of competition the generation market of the nems appears highly concentrated by a four firm concentration ratio or the herfindahl hirschman index however other measures of market power present that the nems is working at close to a competitive market first there seems to be a number of effective competitors in the market second supply margin assessment and residual supply index support that the market is competitive though there are some possibilities in which the largest generator or a few large generators jointly could still have market power third the lerner index of the nems shows that the generation market is fairly competitive and the lerner index adjusted with an industry level price elasticity of demand implies that there has not been much exercise of market power finally vesting contracts a contractual obligation of a specified quantity of electricity supply to the market have appeared to be a strong and effective tool to mitigate market power in the nems the vesting contracts are considered the force behind the lowering in the average uniform singapore electricity price and the lerner index in 2004

efficiency and deregulation of the electricity market in singapore this study examines production efficiency of electricity generation in the new electricity market of singapore nems where deregulation is currently proceeding singapore is reliant on foreign direct investments and exports so competition from countries with lower costs such as china and india is exerting pressure on the government to reduce the costs of doing business here electricity cost is one of these deregulation is believed to be able to bring about lower electricity costs due to the various efficiency gains possible this study concerns itself mainly with production efficiency and attempts to calculate possible production efficiency gains by using linear programming model production efficiency gains are quantified by the base case scenario of continued regulation versus four counterfactual deregulation scenarios the results indicate that cost gains could be about eight per cent of current production cost and this is possibly a lower bound estimate however whether the purported efficiency gains are realized is to be seen as the deregulation proceeds

regional house price dynamics and voting behavior in the fomc i introduction interest rate decisions by the federal open market committee fomc are not always made unanimously different individual views about the appropriate monetary policy stance may lead to the result that members cast dissenting interest rate votes in fomc meetings that is they opt for a higher or lower interest rate than proposed by the chairman of the fomc several studies find that fomc members have different views about the appropriate monetary policy when casting interest rate votes belden 1989 chappell and mcgregor 2000 chappell mcgregor and vermilyea 2005 2008 2012 gildea 1990 1992 havrilesky and gildea 1991 1995 havrilesky and schweitzer 1990 meade and sheets 2005 meade 2010 tootell 1991 1996 an important source of such dissenting votes may be the regional bias of the fomc member which is constituted by its regional affiliation several studies have examined the impact of the regional unemployment rate on the interest rate votes of fomc members while gildea 1992 meade and sheets 2005 and chappell mcgregor and vermilyea 2008 find that a higher regional unemployment rate relative to the national rate increases decreases fomc members preference for monetary easing tightening tootell 1991 finds no significant evidence 1 in this article we analyze whether fomc members align their interest rate voting behavior with house price developments of the federal reserve district they represent in addition to the regional unemployment rate studied so far in this way we can test whether regional house prices and or regional unemployment rates have a significant impact on the voting behavior of fomc members and we examine whether there are systematic differences between regional bank presidents and board members various studies have examined the link between monetary policy and asset price developments according to gilchrist and leahy 2002 there are some good reasons why central banks should align their monetary policies with asset prices first the consumer price index cpi or gross domestic product gdp deflator are incomplete measures since they only signal information on the prices of goods consumed today whereas a more complete measure would also signal future cost of living such as the information contained in asset prices alchian and klein 1973 second asset prices may be useful in forecasting inflation goodhart and hofmann 2000 third asset prices may directly affect real economic activity and inflation since for example wealthier consumers spend more which may affect price developments carroll otsuka and slacalek 2011 whether central banks should react to asset prices is however debated in the literature the traditional view is that central banks should only react to asset prices to the extent that they feed back into the conventional monetary policy goals inflation and output bernanke and gertler 1999 2001 on the contrary cecchetti et al 2000 conclude that it may be reasonable for central banks to react to asset prices in particular house prices in order to avoid the buildup of asset price bubbles as the burst of asset price bubbles may lead to financial crises reinhart and rogoff 2009 leaning against the buildup of extreme asset price changes may therefore be a reasonable choice for central banks as a part of their mission to manage systemic risk allen and carletti 2009 bordo and jeanne 2002 another rationale that central banks should take asset prices particularly house prices into account is that house prices have been shown to be suitable early warning indicators for the outbreak of the recent financial crisis kemme and roy 2012 several empirical papers analyze the impact of asset prices on interest rate setting rigobon and sack 2003 and dupor and conley 2004 find evidence that fomc interest rate decisions are influenced by equity prices on the contrary fuhrer and tootell 2008 find that fomc interest rate decisions are not a direct response to equity price movements and are an indirect response only to the extent that equity prices helped forecast the conventional monetary policy goals

the demise of the national union in italy lessons for comparative industrial relations theory using data collected during field research in italy on the reorganization of the auto industry the author analyzes recent changes in italian industrial relations based on this case study he argues for a new approach to comparative industrial relations research and theory instead of treating national systems as the basic unit of analysis and searching for macro institutional features as the key dimensions to use in constructing comparative typologies of industrial relations systems the author develops an approach focusing on micro level developments and the politics of strategic choice to explain variation within nations two factors appear to be crucial in explaining this variation local socioeconomic conditions that shape the strategies of unions and management in firms undergoing adjustment and the choices unions make in reallocating responsibilities between local and national structures

planning under incomplete information and the ratchet effect abstract central planning of production is usually performed under asymmetric information the firm in general has more information about its productive possibilities than the central planner from now on for short cp this justifies the use of incentives schemes in which the cp does not directly fix activity levels casual observation of such existing schemes suggests that the time dimensions is crucial for their working typically the cp revises the incentive scheme over time to take into account the information provided by the firm s performance managers of centrally planned economies as well as economists have long recognized that this revision induces firms to underproduce in order to avoid demanding schemes in the future this is the ratchet effect it is purpose of the present paper to study the ratchet effect under the non commitment assumption which we believe to be more realistic the inadequacy of conceptual tools made if difficult in the past to consider such an assumption now basic research on dynamic games with incomplete information recently resulted in new ideas which look particularly relevant for a theoretical analysis of the problem

centralized bargaining and reorganized work are they compatible the paper examines the implications for wage bargaining of an important aspect of the ongoing reorganization of work the move from occupational specialization toward multi tasking the analysis shows how on account of such reorganization centralized bargaining becomes increasingly ine cient and detrimental to rms pro t opportunities since it prevents rms from o ering their employees adequate incentives to perform the appropriate mix of tasks the paper also shows how centralized bargaining inhibits rms from using wages to induce workers to learn how to use their experience from one set of tasks to enhance their performance at other tasks in this way the paper may also help explain the increasing resistance to centralized bargaining in various advanced market economies 2001 elsevier science b v all rights reserved

reputation and hierarchy in dynamic models of employment the employment relationship with employees ability and their actions both private information thus combining adverse selection with moral hazard is modeled as a repeated game with self enforcing contracts being perfect bayesian nash equilibria under termination contracts the equilibrium contract structure consists of a hierarchy of ranks finite in number even though ability is continuous reputation acts as an effective device for worker discipline without the need for involuntary unemployment selection by bonding is not in general incentive compatible but selection by promotion of employees through the ranks is many other features correspond to observed employment structures

two sided uncertainty and up or out contracts a bilateral moral hazard problem provides a rationale for up or out employment contracts the employer sets a wage higher than opportunity cost to induce the worker to invest in firm specific capital if the individual does not make the grade it is in the firm s interest ex post to fire him had the initial arrangement not included provisions for firing individuals the firm would underreport the value of the employee wrecking the incentive scheme the basic model permits both firm and worker to be risk neutral therefore it admits a straightforward multiperiod extension which we also investigate

team theory garbage cans and real organizations some history and prospects of economic research on decision making in organizations this essay attempts to articulate and advance a long term agenda for organizational economics the essay begins with a general discussion of four specific items on this agenda and then moves to a more specific discussion of decision making in organizations beginning with two polar opposite conceptions team theory and garbage cans and then describing several recent economic models part of the rationale for writing this essay is that this agenda has both substantive and methodological commonalities with the work of james march copyright 2003 oxford university press

competition and the ratchet effect in labor markets the ratchet effect refers to a situation where workers subject to performance pay choose to restrict their output because they rationally anticipate that firms will respond to higher output levels by raising output requirements or by cutting pay we model this effect as a multiperiod principal agent problem with hidden information and study its robustness to labor market competition both theoretically and experimentally consistent with our theoretical model we observe substantial ratchet effects in the absence of competition which are nearly eliminated when competition is introduced this is true regardless of whether market conditions favor firms or workers

economic growth and multiskilled workers in manufacturing this article analyzes the causes of workers multiskill training and based on a survey of manufacturing plants and workers in korea concludes that multiskill capability arises from specific on the job training paid for by the firm i describe various aspects of multiskilled workers and set up a theoretical model in which multiskilled workers are assumed to be more productive than specialized workers for producing a new product but less productive for producing an existing product the model entails several implications including a positive cross sectional correlation between the proportion of multiskilled workers and the growth rate of labor productivity

the dynamics of learning with team production implications for task assignment we analyze optimal task assignment when a firm needs to learn the abilities of employees when projects require collaboration between juniors and seniors and only team outputs are observable having juniors divide their time between two projects junior sharing is less informative about their abilities but more informative about their senior teammates abilities than having juniors devote all their time to a single project no sharing in an overlapping generations model we show that no sharing is more less attractive than junior sharing if the prior uncertainty about abilities is small large relative to exogenous shocks to team production

the biases of federal reserve bank presidents this paper develops statistical tests which show that in federal open market committee voting federal reserve bank presidents as a group prefer less expansionary monetary policy than federal reserve board members further tests show that a subset of federal reserve bank presidents vote in a manner which is consistent with the partisanship of the u s president during whose term they were appointed membership in this subset is highly correlated with a career as an economist these results have implications for reforms which would alter the voting power of bank presidents on the fomc

an economic approach to influence activities in organizations members of organizations spend considerable time effort and ingenuity attempting to influence decision makers such influence activities may bring benefits to the organization but they also involve real costs this essay offers an economic rationale for such influence activity as representing rational self interested behavior in the presence of informational asymmetries and an analysis of how the design of the organization s structure and policies should respond to the incentives for attempting influence it is posited that information valuable for the organization s decision making is directly available only to members of the organization who have some personal stake in the decisions these individuals may then have an incentive to try to manipulate the information they develop and provide in order to influence the resulting decisions to their benefits this can be costly both in degrading the quality of decision making and in diverting the attention and effort of the organization s members from more productive activities the organization has three different methods it can employ to discourage excessive influence activities and to encourage more directly productive uses of time and effort it can limit access to decision makers and participation in decision making it can alter its decision making criteria to favor those performing well in productive activities and it can provide direct financial incentives to encourage the desired allocation of effort it is shown that an efficiently designed organization will use such financial incentives only as a last resort instead it will always first alter its decision participation policies and decisionmaking criteria

on the incentive effects of job rotation abstract a new employee may work hard to build his reputation this effect is greatest when he starts the longer he is employed at his job the more the firm will already have learned about his ability the incentives for an employee to influence the firm s perceptions of his ability decrease over time if rotating the employee to a different job leads to new uncertainty about his ability this generates a fresh impulse for effort however job rotation also reduces the employee s time horizon thus reducing future rents from reputation this trade off leads to a unique optimum we derive a simple rule of thumb for an optimal rotation time our main results still hold for cases of complete but imperfect information transmission the incentive effects of job rotation also prevail in a setting in which skills are job specific we study several extensions rotations across multiple employees absence of commitment to a rotation time different bargaining positions discounting over time and learning by doing effects

ex ante versus ex post optimal promotion rules the case of internal promotion i introduction the literature on promotion practices within the firm identifies two distinct roles for a firm s promotion policies promotions serve both as a way for the firm to efficiently assign workers to tasks and as a way for the firm to reward prior performance 1 in this article i explore the time inconsistency problem that arises as a result of the dual nature of the promotion decision in particular i show that the common practice of favoring internal candidates for promotion can be understood as a response by firms to the problem of time inconsistency 2 consider a firm in which promotions serve as a reward for prior expenditures of effort and or prior investments in human capital the optimal promotion policy for this firm depends on the time frame from which we view the problem the ex ante optimal promotion rule is the optimal rule when the problem is viewed from a date prior to young workers deciding to work at this firm this rule takes into account both the assignment aspects of the promotion decision and that promotions serve as a reward for prior performance there is a second relevant rule however because at the date of the promotion decision the effects of promotion serving as a reward for prior performance are in the past for example in a world where the possibility of future promotion serves to increase the effort levels of young workers by the time of the promotion decision those effort choices have already been made hence the ex post optimal rule only takes into account the assignment aspects of the promotion decision the time inconsistency problem that arises is now clear total profits are maximized when the firm follows the ex ante optimal promotion rule but in the absence of commitment this is not how the firm behaves at the time of the promotion decision the firm has an incentive to ignore the effects of promotion serving as a reward for prior performance and instead follow the ex post optimal rule in other words the profits of the firm are decreased because at the time of the promotion decision the firm maximizes current profits and the anticipation of this behavior by workers has deleterious effects on behavior in prior periods in this article i explore a specific example of this time inconsistency problem consider a firm s decision concerning whether to fill a managerial position by promotion from within or by hiring an outsider i show that when confronted with this decision the firm faces the exact situation described that is the ex post optimal rule shows no preference for promotion from within over hiring from the outside whereas the ex ante optimal rule exhibits a preference for promoting from within the logic here is that the possibility of receiving the higher managerial wage in the future reduces the wage required to attract young workers into the firm but only the ex ante optimal rule takes this into account the result is that in the absence of commitment the firm hires from the outside too often the conclusion is that the establishment of an internal labor market in which the firm favors promotion from within can be understood as a way that the firm avoids this time inconsistency problem this result extends a finding in malcomson 1984 that article also shows that an internal labor market in which hiring from the outside is restricted can arise in a world where promotion serves as a reward for prior performance in that work however there is no time inconsistency problem the reason is that malcomson assumes workers are homogeneous and thus at the time of the promotion decision it is weakly optimal for the firm to have all promotions be from within in contrast i assume that workers are heterogeneous and find that if the firm maximizes ex post profits it lowers total profits the result is an internal labor market that not only limits hiring from the outside but also constrains the firm to behave in a manner different from that which maximizes profits at the time the promotion decision is made

publicity of debate and the incentive to dissent evidence from the us federal reserve transparency in committee decision making may have clear benefits by making members more accountable to outside observers we consider one potential cost the possibility that publishing records of deliberations will make members more reluctant to offer dissenting opinions we construct a model that compares incentives for members with career concerns to voice dissent when deliberations occur in public or in private we test the model using an original dataset based on deliberations of the federal reserve s federal open market committee asking whether the fomc s 1993 decision to begin releasing transcripts of its meetings has altered incentives for dissent we find evidence that this is indeed the case there has been much recent discussion of the advantages of transparency in agency relationships both in and outside of government while research has attempted to model this issue theoretically there has been less progress with empirical tests a problem due no doubt in large part to the fact that it is difficult to make before and after comparisons of a shift in transparency often no data are available on an agent s actions prior to the establishment of transparency in this article we focus on one specific type of transparency publishing verbatim transcripts of committee meetings and one specific reason why this type of transparency might not be desirable the possibility that the quality of deliberation on a committee will suffer if the deliberations take place in public we develop a theoretical model that helps to identify the potential costs of this type of transparency and we then test the model empirically using an original dataset on deliberations of the federal reserve s federal open market committee fomc our dataset is unique in that it records views expressed by policymakers at fomc meetings and not just their official votes our empirical tests focus in particular on the observed effect of the institutional change that occurred in 1993 when the fomc decided to begin releasing transcripts of its meetings after a delay of five years transparency is a particularly relevant issue in monetary policy because it is commonly argued that when central banks take actions such as publishing macroeconomic forecasts revealing individual votes on monetary policy committees or releasing minutes of meetings this will lead to improved economic outcomes while simultaneously facilitating democratic accountability 1

a long history of fomc voting behavior we devise and apply a method for estimating monetary policy reaction functions for individual members of the federal open market committee fomc of the federal reserve our method uses members votes on the monetary policy directive in fomc meetings as the key source of data on individual preferences the analysis provides a ranking by preference for ease for 84 fomc members who served during the 1966 1996 period

cost benefit analysis of reforming israel s electricity industry abstract in june 2003 the israeli government decided to reform the israeli electricity industry which is currently dominated by israel electric corporation iec a government owned vertically integrated electric utility the first step of the planned reform will be taken in 2006 when iec will be functionally separated into generation transmission local distribution and customer services immediately thereafter will be the second step which by 2012 will result in the deregulation and privatization of the wholesale generation and customer services transmission and distribution t and d services will remain regulated but will be available to all t and d users under mandatory open access this paper summarizes a cost benefit analysis of the government s reform plan relative to a regulated regime the government s plan even if carried out flawlessly may only yield a small net benefit however it entails a large increase in electricity producer profit and government tax receipt at the expense of electricity consumers a less than perfect transition to competition can easily wipe out the potential gain of the government plan market reform experience to date shows that electricity market reform can easily fail and the factors for success do not exist in israel since the outcome of a failing reform can be disastrous it will be imprudent to implement the government s plan in 2006 when the current electricity law expires hence we recommend performance based regulation for the period of 2006 2010 subject to an updated cost benefit analysis possible decentralization privatization and competition may follow

the economics of career concerns part i comparing information structures many incentives in organizations arise not through explicit formal incentive contracts but rather implicitly through career concerns this paper models career concerns through agents trying to manipulate the market assessment of their future productivity the information flow from current actions to market assessment is therefore crucial in determining the nature of these incentives improved information may either increase or reduce incentives the impact of information provides a major distinction between the explicit and implicit incentives model the paper derives general results on comparisons of information structures which serve as counterparts to the standard results on information structures in the principal agent model sufficient statistic impact of a blackwell garbling comparison of inclusive information structures 1999 the review of economic studies limited

on the design of hierarchies coordination versus specialization we consider an economy that has to decide how assets are to be used agents have ideas but these ideas conflict we suppose that decision making authority is determined by hierarchy each asset ha

do central banks react to the stock market the case of the bundesbank abstract in this paper we ask whether the bundesbank prior to the european central bank taking responsibility for monetary policy in 1999 reacted systematically to stock price movements in contrast to the results for the us our empirical findings show a generally weak relationship between german stock returns and short term interest rates at the daily and the monthly frequency the results are extremely robust to alternative model specifications the evidence is inconsistent with the hypothesis of a systematic reaction of the bundesbank to german stock prices however we do find that as in the us the bundesbank may have reacted to the stock market crash of 1987 by loosening monetary policy

a combined sustainability index for electricity efficiency measures abstract one of the most substantial tools that serve decision makers in their efforts to reduce greenhouse gas emissions includes energy efficiency measures that in most cases benefit from governmental assistance for achieving electricity consumption reduction goals this paper examines five energy efficiency measures defining a combined sustainability index a multi criteria analysis of five predefined indices was developed economic environmental technology social and political providing a combined index for each measure and a tool for identifying the preferred measure within a specific situation based on its total sustainability score in this research a case study was conducted and the preferred measure was found to be municipal street lighting systems based on its high political and social scores and its relatively high installation potential the second choice would be replacement of chillers in the industrial sector and the least favorable measure is the replacement of water pumps in the water sector the methodology described brings into account the technological specifications of the measure implemented and the specific national conditions under which it is implemented

identity and the economics of organizations on plebes first day at west point called r day they strip down to their underwear their hair is cut off they are put in uniform they then must address an older cadet with the proper salute and with the statement sir new cadet doe reports to the cadet in the red sash for the first time as ordered plebes must stand and salute and repeat and stand and salute and repeat until they get it exactly right all the while being reprimanded for every tiny mistake in the summary of david lipsky 2003 pp 145 154 who spent four years tracking a company of cadets at west point on r day you surrender your old self in stages but r day is just the beginning of the training and personal re engineering that is to come so that west point graduates emerge four years later as loyal officers in the u s army lipsky shows that despite some failure this tough program is remarkably successful in creating officers with the will to lead in battle economists current picture of organizations and work incentives has no place for the west point program and the motivations it seeks to inculcate in recruits in a standard economic model an individual s preferences are fixed and utility depends only on pecuniary variables the army s aim at west point is to change cadets preferences they wish to inculcate non economic motives in the cadets so that they have the same goals as the u s army alternatively stated the goal of west point is to change the identity of the cadets so they will think of themselves above all else as officers in the u s army they will feel bad about themselves they will lose utility if they fall short of the ideals of such an officer this change in identity

a theory of trade secrets in firms this article provides a simple theoretical model of trade secrets in hierarchical firms a crucial assumption is that each manager has access to trade secrets pertaining to his own hierarchical level as well as to all lower levels the article explores some implications of this assumption for optimal degree of trade secrets accumulation and protection as well as for the wage structure in firms in addition the model implies that managers may have an incentive to overpay their subordinates and protect their firms trade secrets too much

job design delegation and cooperation a principal agent analysis abstract this paper analyzes how tasks are assigned in organizations tasks can be allocated vertically between a principal and an agent or laterally among agents the resulting organizational job design determines how many tasks are delegated to agents and how the agents tasks are divided among them in the framework of the standard principal agent relationship with moral hazard it is shown that i an incentive consideration causes the principal to group a broad range of tasks into an agent s job rather than hire multiple agents and make each of them specialize in just one task and ii the principal may choose to delegate all the tasks in order to mitigate a conflicting incentive problem with agents

the ratchet effect and the market for secondhand workers workers in a long term relationship often have an incentive to hide their ability early in the relationship to avoid having the firm increase the level of output expected from them in the future we show that competition for older workers will permit the implementation of efficient piece rate contracts when the difficulty of the job is unobserved by the firm gibbons 1987 has shown that all piece rate contracts will be inefficient together these results may explain why piece rates are common in some jobs such as agricultural work and sales and not as popular for many manufacturing jobs

the determinants and extent of uaw pattern bargaining the author using two new data sets covering uaw contract outcomes in a wide range of industries estimates the degree to which the union s target settlement with a big three automaker was followed in subsequent settlements in the same bargaining round over the years 1955 79 and 1987 90 using several different specifications and examining both wage levels and percent wage increases he finds that target settlements had large statistically significant spillover effects in all years although the effects were considerably smaller in 1987 90 than in 1955 79 bargaining unit size and industry had important influences on pattern following in all years firm specific financial health indicators had little influence on pattern following in the earlier period but an important influence in 1987 90

deliberation and learning in monetary policy committees i introduction recent theoretical and experimental work on the monetary policy decision process supports the argument that committees may make better policy decisions than individuals e g blinder 2007 blinder and morgan 2005 gerlach kristen 2006 lombardelli proudman and talbot 2005 blinder 2004 38 39 offers four reasons why monetary policy committees mpcs might make better choices than individuals first when members have different preferences diversification avoids extreme outcomes second even if members have similar preferences they might use different models to reach their conclusions third members might use different forecasts or forecasting techniques finally individuals might use different modes of reasoning or heuristics to approach problems the last three reasons in blinder s list suggest that members bring distinct perspectives or information to a committee meeting deliberation in the committee meeting requires members to confront their differences and could result in both learning and better policy decisions former bank of england mpc member richard lambert 2005 and former federal reserve bank of boston president cathy minehan 2006 have pointed to the importance of deliberation in mpc meetings particularly revealing are minehan s 2006 comments about her experience on the federal open market committee fomc one highly important element in dealing with uncertainty is the strength of the committee itself in that regard it is perhaps fashionable to deride committee decision making in general as bureaucratic and cumbersome my view is that in situations where there are many possible philosophical approaches and a lot at stake a committee helps its members to both see all aspects of the issue and weigh the risks and costs of a particular decision as with other vital institutions like the supreme court there is value to a committee decision on policy versus one taken by a single executive the importance of deliberation in various decision making contexts has also been addressed in political science austen smith and feddersen 2006 contribute to the literature on jury deliberation by offering a theoretical analysis of how different voting rules shape voters incentives to share information prior to a vote being taken barabas 2004 finds evidence that deliberation is an effective way to disseminate information and shape opinions about public policy issues u s supreme court justice stephen breyer has explained how deliberation matters in supreme court conferences cited in brafman and brafman 2009 kindle location 1764 if someone is going to write a dissent they have a point they have some kind of point they re trying to make quite often the opinion of the majority is changed somewhat in response to comments and opinions of the dissenters occasionally maybe once or twice a year the whole court shifts even when dissenters do not have enough votes to change the court s opinion they still affect the process it makes the other person take account of the point they have to answer it or they have to take it into account breyer said in the case of the fomc bailey and schonhardt bailey 2008 use a full text content analysis of the 1979 and 1980 fomc transcripts to study the importance of deliberation in the decision to shift to anti inflationary policy under chairman paul volcker they conclude that deliberation in the fomc did indeed matter both in 1979 and 1980 p 404 as volcker led his colleagues to adopt a new operating procedure and maintain a more restrictive monetary policy stance bailey and schonhardt bailey 2009 extend their analysis to the 1979 1999 period and find that the role of deliberation declined from the volcker era to the greenspan era woolley and gardner 2009 concur with this result even in light of previous theoretical and empirical work on deliberation though bailey and schonhardt bailey 2009 22 nevertheless argue that too little attention has been given to understanding the process of deliberation in policymaking and how this yields outcomes decisions and the quality of those outcomes

multiskilling technical change and the japanese firm worker cooperation with technical change accounts for much of the success of large japanese firms the authors argue t hat this cooperative attitude is due in large part to multiskilling by training workers in more than one job a firm assures its workers th at they will not be made worse off by labor saving innovations in a simple model the authors show that multiskilling leads to an endoge nous distinction between permanent and temporary workers wages that are attached to the worker rather than the job and comparative advantage in process style innovations there is even a role for the company song copyright 1993 by royal economic society

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

power sector reform in developing countries mismatched agendas power sector reform is rapidly spreading across all corners of the developing world at an alarmingly rapid pace while the rationales for reform seem to have gained acceptance among the stakeholders the reform model and process are contested this paper examines the impacts of reform using the promised outcomes as a basis for analysis the ability of reform to meet the developmental challenges facing the reformers is explored it concludes that reform has had some achievements if conventional performance indicators are used but also questions the validity of some of these indicators reform has however not fulfilled many of its goals and the prevailing recipes are likely to leave developing countries socially and economically worse off than in the pre reform period progressive government intervention is needed to shift reform process towards a more responsible development path

wage floors imperfect performance measures and optimal job design we analyze the effects of wage floors on optimal job design in a moral hazard model with asymmetric tasks and imperfect aggregate performance measurement due to cost advantages of specialization assigning the tasks to different agents is efficient a sufficiently high wage floor however induces the principal to dismiss one agent or to even exclude tasks from the production process imperfect performance measurement always lowers profit under multitasking but may increase profit under specialization we further show that variations in the wage floor and the agents reservation utility have significantly different effects on welfare and optimal job design

incentives between firms and within this paper reviews the significant progress in agency theory i e the economic theory of incentives during the 1990s with an eye toward applications to supply transactions i emphasize six recent models in three pairs 1 new foundations for the theory of incentive contracts 2 new directions in incentive theory and 3 new applications to supply transactions by reviewing these six models i hope to establish three things first the theory of incentive contracts needed and received new foundations second new directions in incentive theory teach us that incentive contracts are not the only source of incentives finally and especially relevant to supply transactions the integration decision is an instrument in the incentive problem

imperfections in labor markets and the scope of the firm abstract results are derived showing how the interaction of adverse selection and worker uncertainty about job preferences creates incentives for firms to offer a wider array of jobs or integrate the equilibrium wage structure is characterized non integrated firms make retention wage offers increasing in ability while integrated firms do not a generalization in which costs to integration are relevant is then suggested results indicate that it is the interaction between adverse selection and uncertain preferences that leads to a second period allocation of workers across jobs that is not first best but is second best they also show why the presence of adverse selection and uncertain preferences create a tendency toward a scope of integration broader than the first best outcome

the regional representation of federal reserve bank presidents recent litigation has questioned the constitutionality of having federal reserve bank presidents serve on the federal open market committee inherent but undocumented in these lawsuits is the belief that district bank presidents vote differently than federal reserve governors at federal open market committee meetings this paper analyzes the voting behavior of federal reserve bank presidents and uncovers a regional bias in their monetary policy preferences presidents representing regions with higher unemployment rates or with larger percentages of democratic voters tend to vote for more expansionary monetary policy this study provides yet another clue to the monetary policymaking behavior of federal reserve officials copyright 1992 by ohio state university press

regional influences on fomc voting patterns this paper looks at the monetary policy decisions of the u s federal reserve and asks whether observed voting patterns have been driven entirely by national concerns or whether regional factors have also played a role we find that fed policymakers take into account developments in regional unemployment when casting votes on monetary policy these results are robust to different specifications of the voting equation this research is relevant for the fed and it may also be relevant for europe s fledgling central bank in frankfurt in light of regional differences within the euro area

evidence on performance pay and risk aversion abstract making use of a unique representative data set we find clear evidence that risk aversion has a highly significant and substantial negative impact on the probability that an employee s pay is performance contingent which confirms the well known risk incentive trade off

uncertainty in labor productivity and specific human capital investment uncertainty in labor productivity ulp is affected by many factors such as worker employer matching technology and macroeconomic conditions not surprisingly ulp varies across firms industries and economies how do variations in ulp affect specific human capital shc investment wage and labor turnover a fixed wage model is used to show that the answer depends critically on the initial level of ulp the model is also used to show that wage and shc are always positively correlated but shc investment and labor turnover do not have a monotonic relationship these results have implications for empirical studies and public policies affecting ulp

training and worker effort a signalling perspective this paper analyzes the interaction between firms investment in general skills training and workers incentives it shows that when a firm has an informational advantage over its workers its provision of free general skills training can serve as a signal that there will be a long term relationship between the firm and its workers this signal induces the workers to exert more effort in learning firm specific skills which enhances the firm s profits in contrast with most of the existing literature the model implies that firms may provide free general skills training even if there is no labour market friction ce memoire analyse l interaction entre l investissement des entreprises dans l acquisition d habiletes generales de leurs employes et les incitations des travailleurs a fournir un effort on montre que quand une firme a un avantage informationnel sur ses travailleurs le fait de fournir gratuitement de la formation qui permette aux employes d acquerir des habiletes generales peut servir de signal qu il va y avoir une relation a long terme entre la firme et ses travailleurs ce signal incite les travailleurs a investir plus d effort dans l acquisition d habiletes specifiques a la firme ce qui augmente les profits de l entreprise ce modele en porte a faux par rapport au gros de la litterature existante suggere que les entreprises peuvent fournir gratuitement de la formation permettant aux employes d acquerir des habiletes generales meme s il n y a pas de friction dans le marche du travail

piece rate incentive schemes this paper uses recent results from incentive theory to study heretofore informal critiques of piece rate compensation schemes the informal critiques are based on the history of failed attempts to install piece rate compensation schemes at the turn of the century the formal analysis emphasizes the importance of information and commitment in contracting the main result is as follows in a work environment characterized by hidden information and a hidden action if neither the firm nor the worker can commit to future behavior then no compensation scheme piece rate or otherwise can induce the worker not to restrict output

optimal production with uncertain interruptions in the supply of electricity abstract in this paper we develop a model to measure expected electricity outage costs in the industrial and commercial sectors four sources contribute to the costs of outage in these sectors foregone profits output possible reduction in productivity due to the outage damage to materials and payments to labor during the outage the beginning and duration of the electricity outage are random variables with known distribution functions thus the business customer maximizes his expected profits taking into account his ability or lack of ability to respond to the random electricity outage the model is applied assuming a quadratic production function to eleven industrial branches in israel the estimates indicate a large variation in customer preferences for reliability

a theory of on the job learning in this paper the author assumes that a junior worker learns on the job from senior workers the worker s earnings are equal to his value of marginal product minus the tuition to his senior workers plus the teaching reward from his junior workers the slope of the experience earnings profile decreases with the employment growth rate the earnings of an inexperienced worker of an unusually large cohort tend to be higher than the normal level finally the author shows that his model generates an age earnings profile which is increasing concave in age and declining near to retirement copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the dynamics of incentive contracts the paper studies a simple two period principal agent model in which the principal updates the incentive scheme after observing the agent s first period performance the agent has superior information about his ability the principal offers a first period incentive scheme and observes some measure of the agent s first period performance cost or profit which depends on the agent s ability and unobservable first period effort the relationship is entirely run by short term contracts in the second period the principal updates the incentive scheme and the agent is free to accept the new incentive scheme or to quit the strategies are required to be perfect and updating of the principal s beliefs about the agent s ability follows bayes rule the central theme of the paper is that the ratchet effect leads to much pooling in the first period first for any first period incentive scheme there exists no separating equilibrium second when the uncertainty about the agent s ability is small the optimal scheme must involve a large amount of pooling the paper also gives necessary and sufficient conditions for the existence of partition equilibria and looks at the effect of cost uncertainty

do new brooms sweep clean when and why dismissing a manager increases the subordinates performance abstract if a manager stays in office for a long time he will have learned much about his subordinates thus competition among them will be weak as the manager has made up his mind who is suited best for which position with a new manager the race for favorable tasks is restarted leading subordinates to exert higher effort but for the firm owner the trade off arises that with a new manager effort is larger but the quality of task allocation is worse since information is lost the optimal dismissal policy will be nonmonotonic in the expected heterogeneity of the subordinates abilities

should central banks respond to movements in asset prices in recent decades asset booms and busts have been important factors in macroeconomic fluctuations in both industrial and developing countries in light of this experience how if at all should central bankers respond to asset price volatility we have addressed this issue in previous work bernanke and gertler 1999 the context of our earlier study was the relatively new but increasingly popular monetary policy framework known as inflation targeting see e g bernanke and frederic mishkin 1997 in an inflation targeting framework publicly announced medium term inflation targets provide a nominal anchor for monetary policy while allowing the central bank some flexibility to help stabilize the real economy in the short run the inflation targeting approach gives a specific answer to the question of how central bankers should respond to asset prices changes in asset prices should affect monetary policy only to the extent that they affect the central bank s forecast of inflation to a first approximation once the predictive content of asset prices for inflation has been accounted for there should be no additional response of monetary policy to assetprice fluctuations in use now for about a decade inflationtargeting has generally performed well in practice however so far this approach has not often been stress tested by large swings in asset prices our earlier research employed simulations of a small calibrated macroeconomic model to examine how an inflation targeting policy defined as one in which the central bank s instrument interest rate responds primarily to changes in expected inflation might fare in the face of a boom and bust cycle in asset prices we found that an aggressive inflationtargeting policy rule in our simulations one in which the coefficient relating the instrument interest rate to expected inflation is 2 0 substantially stabilizes both output and inflation in scenarios in which a bubble in stock prices develops and then collapses as well as in scenarios in which technology shocks drive stock prices intuitively inflation targeting central banks automatically accommodate productivity gains that lift stock prices while offsetting purely speculative increases or decreases in stock values whose primary effects are through aggregate demand conditional on a strong policy response to expected inflation we found little if any additional gains from allowing an independent response of central bank policy to the level of asset prices in our view there are good reasons outside of our formal model to worry about attempts by central banks to influence asset prices including the fact that as history has shown the effects of such attempts on market psychology are dangerously unpredictable hence we concluded that inflationtargeting central banks need not respond to asset prices except insofar as they affect the inflation forecast in the spirit of recent work on robust control the exercises in our earlier paper analyzed the performance of policy rules in worst case discussants robert shiller yale university glenn rudebusch federal reserve bank of san francisco kenneth rogoff harvard university

reforming israel s electricity sector abstract this paper analyzes the regulatory structure of the electricity sector in israel which is currently dominated by the government owned integrated utility israel electric corporation iec the current structure of a price cap with a mandatory rate reduction of 2 per year and a target return on equity roe of 6 5 is not sustainable because of iec s deteriorating financial health caused by the substantial investments it made to meet the 7 2 per year electricity demand growth in the past decade which has led to an exceptionally low realized roe of 3 4 for that period the investment trend will continue thanks to the 4 5 per year gdp growth projected for the next 10 20 years part of our proposed remedy is performance based regulation pbr implemented via a a price cap formula that will restore iec s financial health and offer iec downward pricing flexibility b changes in how iec compensates its workers and c a sliding scale plan that provides incentives for iec to become more efficient and to share risk with its customers we augment the pbr proposal by recommending changes in iec s tariffs and resource procurement procedures that aim to promote the development of a competitive power industry in the next 10 15 years

salaries and piece rates compensation can take many forms remuneration can come as pecuniary payments as fringes such as health and pension benefits or as a nonpecuniary reward such as plush office furniture that costs the firm less than it benefits the worker a significant literature has examined the trade offs between pecuniary and nonpecuniary compensation the modern work having been pioneered by rosen 1974 more recently another body of literature has examined the selection of method of total compensation ignoring the distinction between pecuniary and nonpecuniary payment this work has focused on risk and incentive factors it has resulted in comparisons of compensation based on absolute output levels to that based on relative performance it has also led to explorations of the relation of compensation to experience over the work life 2 little attention has been paid to what may be among the most important and obvious distinction in methods of compensation namely the choice between a fixed salary for some period of time that is paying on the basis of input and some workers receive compensation that is specified in advance and not directly contingent on performance instead it depends on an input measure such as hours worked for others compensation is directly related to output this essay is an attempt to predict a firm s choice of compensation method piece rates are defined more rigorously among the more important factors discussed are worker heterogeneity incentives sorting considerations monitoring costs and asymmetric information one result is that salary workers tend to be of lower quality and more homogeneous than are their piece rate counterparts numerous additional results are provided helpful comments by victoria lazear and yoram weiss are gratefully acknowledged support was provided by the department of labor and the national science foundation 1 see lazear and rosen 1981 stiglitz 1981 holmstrom 1982 green and stokey 1983 2 see lazear 1979 1981 and harris and holmstrom in press

uncertainty task environment and organization design an empirical investigation the paper addresses two broad research questions 1 how do internal uncertainty associated with the task environment and external uncertainty arising from market volatility impact organization design 2 what are the relationships among various elements of organization design delegation of decision making incentives monitoring and internal labor market practices promotion training employment security we expand on prendergast 2002a who challenged the conventional view of a tradeoff between risk and incentives and build a single unified framework for answering our two research questions using a uniquely rich dataset that contains detailed information about the task environment of core employees and organization design at the individual group and firms levels in 530 minnesota firms in the mid 1990s we first find support for prendergast s key argument that internal uncertainty over which employees have control affects directly the allocation of decision making and only indirectly incentives via allocation of decision making this confirms similar findings by foss and laursen 2005 devaro and kurtulus 2010 and shi 2011 we also find that internal uncertainty has much impact on organization design through the choice of delegation of decision making at the employee level less so at the group level and very little at the firm level whereas external market uncertainty has little effect on organization design especially at the individual and group level decision making monitoring various internal labor market practices and incentives are strongly related to each other through substitution and complementarity

the policy preferences of fomc members as revealed by dissenting votes comment the purposes of this comment are to present evidence that casts doubt on several of the conclusions of susan belden s recent paper in this journal 1989 and to suggest directions for future research in this area to begin there is skepticism that dissenting votes at least as belden measures them can be unbiased indicators of policy preferences in addition belden partially recognizes but does not fully specify three influences on federal open market gommittee fomc member voting that are prominently featured in the literature these influences are 1 fomc member training background and career experience 2 state of the economy measures and 3 partisanship measures each of these factors alone may help to explain one of belden s three major findings first the training backgrounds and career experiences of bank presidents may help to explain belden s affirmation of their penchant to dissent from fomc directives on the side of monetary tightness second the state of the economy may help to explain belden s finding of a decline in dissent voting when arthur burns was chairman of the federal reserve third differences between the party of the president and the partisan composition of the board of governors may help to explain belden s discovery of shifts in ease and tightness dissent voting behavior under different chairmen since this comment will indicate how these influences qualify belden s elndings it will at the same time suggest fruitful directions for the research agenda in this area

the economics of career concerns part ii application to missions and accountability of government agencies the paper uses a simple multitask career concern model in order to analyse the incentives of government agencies officials incentives are impaired by the agency pursuing multiple missions a lack of focus is even more problematic in the case of fuzzy missions that is when outsiders are uncertain about the exact nature of the missions actually pursued by the agency consequently agencies pursuing multiple missions receive less autonomy the paper further shows that professionalization creates a sense of mission for the agency and that the specialization of officials raises their incentives last the paper compares its predictions with the stylized facts on government bureaucracies 1999 the review of economic studies limited

the narrow moving band the dutch disease and the competitive consequences of mrs thatcher notes on trade in the presence of dynamic scale economies abstract this paper presents a model of trade in which comparative advantage instead of being determined by underlying attributes of countries evolves over time through learning by doing in this model arbitrary patterns of specialization once established tend to become entrenched over time the model sheds light on three widely held views that do not make sense in more conventional models first is the view that temporary protection of selected sectors can permanently alter the pattern of comparative advantage in the protecting country s favor second is the view that seemingly favorable developments such as the discovery of exportable natural resources may lead to a permanent loss of other sectors and reduce welfare in the long run third is the possibility that a temporary overvaluation of a currency due to tight money can lead to a permanent loss of competitiveness in some sectors

electricity market reform failures uk norway alberta and california an analysis of electricity market reforms already taken place in the uk norway alberta canada and california usa leads to our overall conclusion that the introduction of a competitive generation market of itself has failed to deliver reliable service at low and stable prices the market reform failures are attributed to market power abuse by few dominant sellers especially at times of transmission congestion poor market design that invites strategic bidding by suppliers the lack of customer response to price spikes capacity shortage caused by demand growth not matched by new capacity and thin trading of forward and futures contracts that are critical for price discovery and risk management the paper then explains why an electricity market reform can easily fail to deliver the promised gains of better service at lower and more stable prices the policy implication is that an electric market reform can be extremely risky and may lead to a disastrous outcome thus it is imprudent to implement such a reform in countries with limited sites for newgeneration and no indigenous fuels e g israel and hong kong these countries should therefore consider introducing performance based regulation that can immediately benefit electricity consumers in terms of lower prices more stable prices improved reliability more choices while encouraging the electric sector to pursue efficient operation and investment r 2003 elsevier science ltd all rights reserved

putting tasks to the test human capital job tasks and wages using original representative survey data we document that analytical routine and manual job tasks can be measured with high validity vary substantially within and between occupations are significantly related to workers characteristics and are robustly predictive of wage differences between occupations and among workers in the same occupation we offer a conceptual framework that makes explicit the causal links between human capital endowments occupational assignment job tasks and wages which motivate a roy model of the allocation of workers to occupations we offer two simple tests of the model s gross predictions for the relationship between tasks and wages both of which receive qualified empirical support

did the recent housing boom signal the global financial crisis author affiliation david m kemme dmkemme memphis edusaktinil roy saktinil athabascau ca1 introductionshiller 2005 pp xiii iv argued that the rapid surges of real home prices in the united states and other countries in the late 1990s and early 2000s signaled the potential for widespread personal and institutional bankruptcies and a worldwide recession probably as deep and lasting as japan s lost decade 1 of course as we know today this was one of few highly accurate predictions of events that unfolded after the u s subprime market collapse of 2007 2008 2 given the prevailing regulatory conditions and implied financial liberalization the housing boom was a bubble phenomenon driven primarily by the over optimism of a new era in which home prices would only rise historically financial booms around the world which were similarly associated with wishful thinking of unending future increases in asset prices also imploded and led to recession in similar ways indeed thorough observation of these historical episodes and of the contemporary sudden changes in the housing markets was the basis of shiller s 2005 pp xiii iv chapters 2 7 prescience regarding the potential magnitude and impact of the current turmoil nevertheless the emerging literature on the current episode has not yet provided an empirical framework with which to confirm these observations and prescience could the insights that followed from historical and contemporary evidence but that were not so obvious to most researchers policy makers and market participants be produced with appropriate data and standard statistical procedures specifically following shiller s 2005 pp xiii iv chapters 2 7 observations and insights shouldn t the rapid rise since 1998 of real house prices alone provide enough information to foretell the current state of the housing and banking sectors and the implications for the whole economy this article employs standard statistical models and examines this simple proposition we follow a two step procedure answering two different but related questions first we provide a statistical confirmation of the observation made by shiller 2005 chapter 2 2008 chapter 2 that the drastic increase in real house prices in the united states since 1998 was mainly unexplained by changes in economic fundamentals such as income population building costs and long term interest rates we find that although these fundamentals largely explain real house prices in the united states over the period from 1950 through 1997 our out of sample forecasts indicate that the same fundamentals fail to account for a sudden large rise of real house prices during 1998 2005 next in line with shiller s observation 2005 chapter 7 that similar historical financial booms imploded in similar ways we examine the predictability of the recent global crisis based on historical house price data associated with other post war bank centered crisis episodes we fit panel probit and logit models to a cross country panel of data for real house prices for advanced economies that experienced banking crises in the post war period and conclude that a housing boom is a good predictor of financial crisis we then ask if the recent global crisis specifically the systemic banking crises in the united states britain ireland and spain which also had prior housing bubbles can be predicted out of sample the finding is that this is indeed possible credible alarms can be generated for the banking crises of all four countries three years in advance in section 2 we present shiller s 2005 chapter 2 argument for an unsustainable housing boom in the united states during 1998 2005 and substantiate it statistically in section 3 we investigate the observation by shiller 2005 chapter 7 inter alia that prior speculative bubbles are quite common to financial crises around the world so that the housing booms in the united states and other countries in the early 2000s signaled a global recession

strategic shirking a theoretical analysis of multitasking and specialization we provide a new theory to explain why firms multitask workers instead of specializing them workers overperform in tasks they like and underperform in tasks they dislike to favorably influence future job assignments anticipating this firms may find it optimal to commit to future multitasking to induce workers to appropriately allocate effort early in the employment relationship we show that when the product market is volatile so that future product prices are uncertain the firm s ability to credibly commit to a multitasking strategy diminishes this generates a negative relationship between multitasking and product market volatility consistent with recent empirical evidence

internal promotion and external recruitment a theoretical and empirical analysis we present a theoretical and empirical analysis of internal promotion versus external recruitment using a job assignment model involving competing firms with heterogeneous productivities and two level job hierarchies with one managerial position the model predicts that controlling for the number of managers increasing the number of lower level workers is associated with 1 greater internal promotion as opposed to external recruitment 2 higher profit and 3 more general training empirical analysis of a large cross section of british employers is consistent with these predictions

the fed response to equity prices and inflation a number of researchers and market observers hold that the dramatic increase during the 1990 s and subsequent decline in u s stock prices were due to non fundamental factors such as irrational expectations or bubbles if this view is correct policymakers may be concerned with the real macroeconomic consequences of the stock market run up these might include overconsumption due to a perceived wealth effect or too much physical investment due to a lower financing cost of capital following this reasoning the federal reserve could raise the fed funds target rate to offset perceived non fundamental stock price increases this policy stance may seem particularly appealing if the fed s primary target low and stable inflation is already being achieved this paper studies how federal reserve interestrate policy from 1979 4 onward responds to an aggregate measure of stock market activity under high versus low inflation most existing research makes no distinction between policy across the highand low inflation times of the past 24 years two conventional findings of this existing research are that the federal reserve i raises the short term real interest rate in response to inflation and ii does not change policy in response to equity price movements 1

optimal contracting with subjective evaluation this paper extends the standard principal agent model to allow for subjective evaluation the optimal contract results in more compressed pay relative to the case with verifiable performance measures moreover discrimination against an individual implies lower pay and performance suggesting that the extent of discrimination as measured after controlling for performance may underestimate the level of true discrimination finally the optimal contract entails the use of bonus pay rather than the threat of dismissal hence neither efficiency wages nor the right to dismiss an employee are necessary ingredients for an optimal incentive contract

the firm as a communication network this paper analyzes how organizations can minimize costs of processing and communicating information communication is costly because it takes time for an agent to absorb new information sent by others agents can reduce this time by specializing in the processing of particular types of information when these returns to specialization outweigh costs of communication it is efficient for several agents to collaborate within a firm it is shown that efficient networks involve centralization that individuals delegate tasks to subordinates only if they are overloaded and that the number of transits to the top tends to be equalized across individual information items

regional banking instability and fomc voting abstract this study analyzes if regionally affiliated federal open market committee fomc members take their districts regional banking sector instability into account when they vote considering the period 1979 2010 we find that a deterioration in a district s bank health increases the probability that this district s representative in the fomc votes to ease interest rates according to member specific characteristics the effect of regional banking sector instability on fomc voting behavior is most pronounced for bank presidents as opposed to governors and fomc members who have career backgrounds in the financial industry or who represent a district with a large banking sector

a microeconomic mechanism for economic growth this paper constructs a dynamic general equilibrium model in which economic growth is explained by the evolution of the division of labor the relationships among the accumulation of human capital the evolution of the division of labor endogenous comparative advantage trade dependence the market structure and economic growth are investigated

monetary policy and the global housing bubble what caused the housing boom of the 2000s a number of researchers have suggested that loose monetary policy during the first half of the 2000s was a primary cause of the substantial run up in house prices in many countries however using a common statistical approach we find that monetary policy was not the main factor that should not be surprising although low interest rates raise house prices the increase in prices during the mid 2000s was much larger than the historical relationship between the two variables would suggest instead we investigate further the link between the marked loosening in terms and standards for mortgage credit and the most rapid increases in house prices this link provides some evidence for a story where credit provision and the demand for housing fed on each other and helped spur the housing boom our work suggests a greater role for macroprudential regulation rather than monetary policy in managing asset price booms jane dokko brian m doyle michael t kiley jinill kim shane sherlund jae sim and skander van den heuvel

eyes on the prize how did the fed respond to the stock market abstract since the stock market boom of the 1990s many have suggested the federal open market committee fomc has adopted an unannounced policy goal of supporting equity values this paper offers a new approach to disentangle the relationship between changes in equity values and monetary policy specifically the paper distinguishes the fomc s reaction to forecasts of traditional goal variables which may depend on equity prices from the fomc s independent reaction to changes in equity prices by using actual forward looking variables examined by the fomc before each action the greenbook forecasts the authors find little evidence to support the proposition that the fomc responds to stock values except as filtered through a forecast of accepted monetary policy goal variables

firm heterogeneity in capital labour ratios and wage inequality author s leonardi marco abstract this paper documents the increasing dispersion of capital labor ratios across firms in the us and provides some empirical evidence of a positive correlation at the two digit industry level between the dispersion of capital labor ratios across firms and residual wage inequality to explain this empirical fact the paper adopts a search model where firms differ in their optimal capital investment the exogenous decline in the relative price of equipment capital makes the distributions of capital labor ratios more dispersed in a frictional labor market this force generates wage dispersion among identical workers ols estimates of the relationship between capital dispersion and the relative price of equipment capital support the main hypothesis of the model

measuring the reaction of monetary policy to the stock market movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy however little is known about the magnitude of the federal reserve s reaction to the stock market in part because the simultaneous response of equity prices to interest rates makes it difficult to estimate this paper uses an identification technique based on the heteroskedasticity of stock market returns to measure the reaction of monetary policy to the stock market we find a significant policy response with a 5 percent rise fall in the s p 500 index increasing the likelihood of a 25 basis point tightening easing by about a half

worker cooperation and the ratchet effect workers paid by the piece should be happy to introduce new techniques that increase output but firms always seem to reduce the piece rate when workers start earning too much money workers respond by restricting output and keeping good new ideas to themselves we show that this outcome is inevitable in a competitive environment however there are noncompetitive situations where firms can use piece rates to get cooperation from their workers these predictions are consistent with case history evidence from the cotton spinning industry in england in the nineteenth century and the lincoln electric company in the united states even today

interdependence in worker productivity this paper investigates interactions between co worker productivity levels in a rich empirical context workers have unambiguous output measures compensation that depends on individual and group output to differing degrees and potential peers beyond their immediate work group important productivity interdependencies exist which could arise from the group based component of compensation peer pressure common supervisors or information exchanges but not group based output or technological interdependence workers with the strongest individual incentives seem least sensitive to these interactions in contrast they are important to workers with no individual incentives for these workers peer pressure must be a powerful influence copyright 2003 john wiley sons ltd

policy preferences of fomc members as revealed by dissenting votes the composition of the federal open market committee the ability to predict the effect of policy decisions on economic and f1nancialvariables and political influence from the white house and the congress are all potentially significant determinants of monetary policy decisions this study uses the record of dissenting votes from federal open market committee meetings to consider the relevance of these influences tests for differences between voting patterns of bank presidents versus members of the board of governors and differences during various historical periods provide insight into four questions 1 are the policy preferences of bank presidents different from those of the members of the board 2 does uncertainty about the economic and financial results of policy actions influence the level of dissent 3 is there a difference in the pattern of dissent under different chairmen and 4 is there effective political influence on monetary policymakers the legitimacy of district bank presidents serving on the fomc has been challenged in the courts and the legislature challengers fear that district bank presidents who serve without executive or legislative approval prefer policy that produces lower inflation and higher unemployment relative to the policy preferred by members of the board who are appointed by the president and confirmed by the senate rogoff 1985 argues that in the presence of market distortions it is better for society to have central bankers who attach a larger weight than the society s

implicit contracts incentive compatibility and involuntary unemployment this paper considers the enforceability of employment contracts when employees performance cannot be verified in court so that piece rate contracts are not legally enforceable part i shows that there exists a variety of self enforcing implicit contracts modelled as perfect equilibria in a repeated game and characterizes all the wage and performance outcomes that can be implemented implementation requires a strictly positive surplus from employment the form of the contract depending on how this surplus is divided between firm and employee piece rate contracts and contracts with an informally agreed bonus can be made self enforcing but the use of severance pay and bonding does not extend the set of implementable allocations the resulting contracts resemble actual labor contracts more than do the contracts in standard principal agent models part ii analyses market equilibrium with these contracts also modelled as perfect equilibria in a repeated game and shows that many such equilibria exist unfilled vacancies and unemployed workers can co exist despite the existence of contracts that are potentially mutually beneficial for those jobs that are filled any division of the potential surplus is possible so that the market can have at the same time involuntary unemployment and vacancies that are unfilled despite filled jobs earning positive profits as a criterion for selecting equilibria a notion of renegotiation proofness is applied then either all workers are employed or all jobs filled but any division of the potential surplus is still possible the paper explores what further restrictions on beliefs give rise to a walrasian outcome in which all the potential surplus goes to the short side of the market and to an efficiency wage type outcome in which the potential surplus goes to the long side

appointment procedures and fomc voting behavior an important issue for the conduct of monetary policy in the united states is whether the various appointment procedures of members of the federal open market committee help determine their voting behavior it is usually asserted that the method by which district bank presidents are appointed leads to more independence and or more conservative behavior increased independence is generally believed to reduce suboptimal short run manipulation of monetary policy but at the cost of reducing the central bank s accountability to the country s short run and longrun objectives the social desirability of any potential differences in monetary policy resulting from these appointment procedures and the optimality of discretionary policy in general are not addressed in this paper however instead the effect on monetary policy of the different appointment procedures currently in place within the federal reserve system is examined does the increased independence that the district bank presidents supposedly possess produce significantly different monetary policy from that of the politically appointed board governors many studies have examined the effects various appointment procedures may have on voting at the fomc and the results have been somewhat mixed belden 2 chappell havrilesky and mcgregor 3 havrilesky and gildea 6 and puckett 8 find that bank presidents tend to vote for tighter policy than board governors while tootell 10 finds no differences between the two groups most of the literature has concluded that in some unclearly defined way and for no clear theoretical reason the more independent district presidents are more conservative than the board governors in this paper conservative is defined over several clear dimensions in order to test whether district presidents vote more conservatively than board governors some slight variation in the voting behavior of bank presidents and board governors is found but the causes of any dissimilarities are shown to be much different from those asserted in the earlier literature

external recruitment versus internal promotion this article analyzes the choice between internal promotion and external recruitment within the framework of an economic contest opening up the competition for a position to external candidates re

the division of labor coordination costs and knowledge this paper considers specialization and the division of labor a more extensive division of labor raises productivity because returns to the time spent on tasks are usually greater to workers who concentrate on a narrower range of skills the traditional discussion of the division of labor emphasizes the limitations to specialization imposed by the extent of the market we claim that the degree of specialization is more often determined by other considerations especially emphasized are various costs of coordinating specialized workers who perform complementary tasks and the amount of general knowledge available