group loyalty and the taste for redistribution interpersonal preferences preferences that depend on the characteristics of others are typically hard to infer from observable individual behavior as an alternative approach this paper uses survey data to investigate interpersonal preferences i show that self reported attitudes toward welfare spending are determined not only by financial self interest but also by interpersonal preferences these interpersonal preferences are characterized by a negative exposure effect individuals decrease their support for welfare as the welfare recipiency rate in their community rises and racial group loyalty individuals increase their support for welfare spending as the share of local recipients from their own racial group rises these findings help to explain why levels of welfare benefits are relatively low in racially heterogeneous states

sacrifice and stigma reducing free riding in cults communes and other collectives this paper presents an economic analysis of religious behavior that accounts for the continuing success of groups with strange requirements and seemingly inefficient prohibitions the analysis does not presuppose any special motives for religious activity rather religion is modeled as a club good that displays positive returns to participatory crowding the analysis demonstrates that efficient religions with perfectly rational members may benefit from stigma self sacrifice and bizarre behavioral restrictions the model also addresses sacrifice in nonreligious social clubs fraternities communes political parties work groups and families

peer pressure and partnerships partnerships and profit sharing are often claimed to motivate workers by giving them a share of the pie but in organizations of any significant size the free rider effects would seem to choke off

the price effects of increased competition in auction markets bidding theory predicts low er selling winning bids higher buying winning bids as numbers of bidders incre ase alternative versions predict that winning bids fall rise with the second order statistic the maximum order statistic or 1 n the authors test these pre dictions using data on underwriters spreads on tax exempt bonds offshore oil t racts and national forest timber they estimate winning bids using general vari ables for the product and dummies for 1 2 11 bidders in all cases mor e bidders meansignificantly lower selling winning bids the expected maximum order statistic fits better than either the second order statistic or1 n in te n out of twelve cases copyright 1987 by mit press

is the u s labor market really that exceptional a review of richard freeman america works is a splendid book and richard freeman is to be congratulated on producing a work that sets out what is right and what is wrong with the u s labor market while being a joy to read while i am generally sympathetic to both the analysis and the conclusions there are a number of points of disagreement that i highlight in this review in particular i would add to his policy recommendations by taking a gamble and enacting a law that entitled all employees in the united states to four weeks paid holiday per year in addition to public holidays this may transform summertime in the united states

incentives in organizations n 1975 steven kerr published on the folly of rewarding a while hoping for b the argument was simple you get what you pay for kerr distilled this unifying theme from a disparate set of examples involving politicians soldiers doctors orphanage directors professors and students as well as manufacturing and clerical employees and even human resource managers from these examples kerr pp 77980 concluded that two main causes of distorted incentives are fascination with an objective criterion where individuals seek to establish simple quantifiable standards against which to measure and reward performance and overemphasis on highly visible behaviors when some parts of the task are highly visible while others are not it took agency theory 15 years to express kerr s title not to mention to evaluate or extend his conclusions during this period agency theory was obsessed with the tradeoff between incentives and insurance even though clear eyed observations like kerr s about the design and performance of real incentive contracts suggested that several other issues are at least as important fortunately recent work has brought agency theory not only to kerr s position but beyond in this paper i summarize four new strands in agency theory that help me think about incentives in real organizations as a point of departure i begin with a quick sketch of the classic agency model i then discuss static models of objective performance measurement that sharpen kerr s argument repeated game models of subjective performance assessments incentives for skill development rather than simply for effort and incentive contracts between versus within organizations i con

sect subsidy and sacrifice an economist s view of ultra orthodox jews israeli ultra orthodox men study full time in yeshiva until age 40 on average why do fathers with families in poverty choose yeshiva over work draft deferments subsidize yeshiva attendance yet attendance typically continues long after exemption fertility rates are high tfr 7 6 and rising a social interaction approach explains these anomalies yeshiva attendance signals commitment to the community which provides mutual insurance to members prohibitions strengthen communities by effectively taxing real wages inducing high fertility historically the incursion of markets into traditional communities produces ultra orthodoxy subsidies induce dramatic reductions in labor supply and unparalleled increases in fertility illustrating extreme responses social groups may have to interventions

takeovers managerial incompetence or managerial shirking agency theory identifies managerial shirking as the cause for takeovers while other explanations focus on low ability managers this paper formalizes jensen s free cash flow variant of agency theory by constructing a simple two period game which captures the distinctive empirical implications of the two theories using data for petroleum firms following the oil price shock of 1979 80 we find that firms undergoing financial restructuring exhibited higher values of tobin s q additionally evidence of management turnover and workforce cuts emphasizes that takeovers appear primarily designed to address agency concerns i introduction recent explanations for the causes of takeovers focus on the need to enhance managerial efficiency but there are two competing theories grossman and hart 1980 and shleifer and vishny 1986 postulate that takeovers replace managers of low ability jensen 1986 in contrast argues that takeovers emerge from agency problems specifically the need to restrain managers from dissipating free cash flow 1 to jensen takeovers increase managerial effort by raising debt obligations which commit otherwise free cash flows thus a takeover could be required either to replace incompetent managers or to constrain existing managers to more effectively pursue shareholder interests an agency problem unlike previous research which tends to be either theoretical 2 or empirical 3 this paper formalizes and tests a general model of takeovers that incorporates both types of managerial inefficiencies we attempt to bring out the distinctive implications of these theories and then test between them our theoretical model building on the earlier work of grossman and hart 1980 1982 and shleifer and vishny 1986 uses a game theoretic framework to formalize how free cash flow affects the incentives of managers it shows how stochastic shocks financial structure and the probability of bankruptcy interact to determine the optimal level of managerial effort one implication of the agency explanation for managerial inefficiency is that an exogenous increase in earnings will decrease managerial effort below efficient levels to attenuate this agency problem firms will financially recapitalize by increasing the debt equity ratio restoring the effort of existing managers to ex ante efficient levels alternatively when managerial incompetence motivates takeovers the target firms should be underperforming the industry the takeover should then lead to changes in management rather than recapitalization this paper uses a unique data set from the petroleum industry in the early 1980s to test between these distinctive theories the heavy takeover activity in this industry provides an excellent sample for empirical tests by restricting the analysis to firms within the same industry we control for inter industry effects which could otherwise vitiate the empirical findings the broad similarity of the firms also permits us to use tobin s q as a measure of firm performance since the asset bases and competitive conditions of the firms are highly similar another key advantage of using this industry is the availability of independent valuations of individual petroleum firm s assets this independent measure enables us to reliably measure asset values which can also limit tobin s q analysis section ii describes the theoretical model section iii examines three highly varied types of empirical evidence each aimed at separating the effects of managerial ability versus managerial effort as explanations for takeovers section iv recapitulates the major findings ii a game theoretic model of takeovers incorporating agency effects grossman and hart 1980 pioneered the development of game theoretic models of takeovers leading to further advances by shleifer and vishny 1986 in borrowing extensively from these earlier works our objective is to construct a simple model incorporating both types of managerial inefficiencies in order to derive their distinctive empirical implications

work environment and individual background explaining regional shirking differentials in a large italian firm the prevalence of shirking within a large italian bank appears to be characterized by significant regional differentials in particular absenteeism and misconduct episodes are substantially more prevalent in the south we consider a number of potential explanations for this fact different individual backgrounds group interaction effects sorting of workers across regions differences in local attributes different hiring policies and discrimination against southern workers our analysis suggests that individual backgrounds group interaction effects and sorting effects contribute to explaining the north south shirking differential none of the other explanations appears to be of first order importance i introduction whether individual behavior is determined by group interactions or by individual background is undoubtedly a fundamental question for the social sciences this question presented itself forcefully when we stumbled onto the following piece of evidence there appear to be significant regional differentials in the prevalence of shirking among the employees of a large italian bank in particular absenteeism and misconduct episodes are considerably more frequent in the southern branches of the bank in this paper we examine several potential explanations for this fact first individual preferences for shirking versus working may differ according to one s region of hirth we will refer to this hj othesis as one of different individual hackgrounds the second possibility is one of locational sorting low shirking types may tend to migrate to the north high shirking types may tend to migrate to the south or hoth third the northern and southern

patterns of work across the oecd market work per person of working age differs widely across the oecd countries and there have been some significant changes in the last forty years how to explain this pattern taxes are part of the story but much remains to be explained if we include all the elements of the social security systems like early retirement benefits sickness and disability benefits and unemployment benefits then we can capture some aspects of the overall pattern but still a lot remains unexplained the story favoured by alesina et al cepr dp 5140 2005 is that the nexus of strong unions generous welfare and social democracy implies both high taxes and pressure in favour of work sharing in response to adverse shocks this story however falls foul of the simple fact that most scandinavian countries now do much more work than the french and germans despite having stronger unions more generous welfare higher taxes and more social democracy ultimately we are forced into the position that there is no simple story some of the broad patterns can be explained but there remain country specific factors which are hard to identify but lead to substantial differences from one country to another

discrete choice with social interactions this paper provides an analysis of aggregate behavioural outcomes when individual utility exhibits social interaction effects we study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behaviour of others in an environment of noncooperative decisionmaking laws of large numbers are generated in such environments multiplicity of equilibria in these models which are equivalent to the existence of multiple self consistent means for average choice behaviour will exist when the social interactions exceed a particular threshold local stability of these multiple equilibria is also studied the properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices finally a likelihood function based on the theoretical model is given and conditions for the econometric identifiability of the model are established

trust in large organizations several authors suggest that trust is an important determinant of cooperation between strangers in a society and therefore of performance of social institutions we argue that trust should be particularly important for the performance of large organizations in a cross section of countries evidence on government performance participation in civic and professional societies importance of large firms and the performance of social institutions more generally supports this hypothesis moreover trust is lower in countries with dominant hierarchical religions which may have deterred networks of cooperation trust hold up remarkably well on a cross section of countries this abstract was borrowed from another version of this item

cowards and heroes group loyalty in the american civil war what motivated men to risk death in the most horrific war in u s history when pay was low and irregular and military punishment strategies were weak in such a situation creating group loyalty by promoting social capital is of paramount importance and in the civil war was the cement of both armies we find that individual and company socioeconomic and demographic characteristics ideology and morale were important predictors of group loyalty in the union army company characteristics were more important than ideology or morale soldiers in companies that were more homogeneous in ethnicity occupation and age were less likely to shirk

effects of social norms and fractionalization on voting behaviour in japan this article uses prefecture level panel data from japan spanning the period 1989 2003 to examine the influence of social norms and fractionalization on voting behaviour the key findings obtained from analysis via the fixed effects estimation which controls for unobserved prefecture specific fixed effects are as follows 1 the voter turnout is higher in close knit communities indicating that social norms enhance voting 2 fractionalization from both economic and generational standpoints lowers the voter turnout and 3 a lack of social capital can lead to the distribution of votes being spread thinly among the competing parties

alternative models of managerial behavior empirical tests for the petroleum industry explanations for takeovers often focus on managerial inefficiency as an explanation this paper utilizes panel data for a set of petroleum firms to test two competing hypotheses about managerial inefficiency the heterogeneous managerial model versus the free cash flow variant of agency theory by focusing on specific investment categories like exploration bidding and leasing activity and r 50d the effects of changes in management and cash flow are better isolated the empirical results provide considerable support for the free cash flow variant of agency theory showing that reduced cash flow due to restructuring will curtail investments in exploration bidding and leasing activity and r 50d copyright 1989 by mit press

takeover threats and managerial myopia this paper examines the familiar argument that takeover pressure can be damaging because it leads managers to sacrifice long term interests in order to boost current profits if stockholders are imperfectly informed temporarily low earnings may cause the stock to become undervalued increasing the likelihood of a takeover at an unfavorable price hence the managerial concern with current bottom line the magnitude of the problem depends on a variety of factors including the attitudes and beliefs of shareholders the extent to which corporate raiders have inside information and the degree to which managers are concerned with retaining control of their firms

poverty and worklessness in britain relative poverty in the uk has risen massively since 1979 mainly because of increasing worklessness rising earnings dispersion and benefits indexed to prices not wages the economic force underlying this is the significant shift in demand against the unskilled this has substantially weakened the low skill labour market which has increased both pay dispersion and worklessness particularly among low skilled men practical policies discussed include improving education and overall well being for children in the lower part of the ability range raising wage floors new deal policies tax credits and benefits for the workless

identification of endogenous social effects the reflection problem this paper examines the reflection problem that arises when a researcher observing the distribution of behaviour in a population tries to infer whether the average behaviour in some group influences the behaviour of the individuals that comprise the group it is found that inference is not possible unless the researcher has prior information specifying the compisition of reference groups if this information is available the prospects for inference depend critically on the population relationship between the variables defining reference groups and those directly affecting outcomes inference is difficult to implossible if these variables are functionally dependent or are statistically independent the prospects are better if the variables defining reference groups and those directly affecting outcomes are moderately related in the population

a test of the free cash flow hypothesis results from the petroleum industry over the period 1979 85 the petroleum industry offers a unique test of the agency theory of corporat e restructuring a panel data set for twenty five firms indicates con siderable support for a hybrid free cash flow model in which explorat ion expenditures appear guided by neoclassical profitability measures but at the margin cash flow also exerts an independent influence the magnitude of the parameter estimates suggests that the free cash flow hypothesis does not fully explain the gains from restructuring copyright 1988 by mit press

emulation inequality and work hours was thorsten veblen right we investigate the manner in which a desire to emulate the rich influences individuals allocation of time between labour and leisure greater inequality inducing longer work hours as a result data on work hours in ten countries over the period 1963 98 show that greater inequality is indeed associated longer work hours these veblen effects are large and the estimates are robust using country fixed effects and other specifications because consumption inequality is a public bad a social welfare optimum cannot be implemented by a flat tax on consumption but may be accomplished by more complicated progressive consumption taxes at the close of the nineteenth century thorsten veblen proposed what he termed pecuniary emulation as the foundation of a theory of consumption spending he maintained is driven by relative status considerations that is by the desire to be a particular type of person as much as bythedesire to enjoytheconsumer goodsper se the joneses with whom one had to keep up were not the neighbours but the rich theirleveloflivingbecamethenever attainableobjectiveinaconsumptionarmsrace among the less well to do in the theory of the leisure class he wrote the motive is emulation the stimulus of an invidious comparison especially in any community in which class distinctions are quite vague all canons and reputability and decency and all standards of consumption are traced back by insensible gradations to the usages and thoughts of the highest social and pecuniary class the wealthy leisure class 1934 p 81 while valued by some economists as capturing common sense aspects of consumption as a form of status seeking veblen s view of social preferences was soon eclipsed by the simpler and more tractable neoclassical theory of the consumer relegated to the underworld of economics veblen s ideas have nonetheless resonated over the ensuing years in the writing of duesenberry 1949 leibenstein 1950 and galbraith 1958 at the middle of the past century and schor 1998