on the duration of agreements a model of optimal contracts between two infinitely lived parties a borrower and lender is presented and analyzed the objective is to explain the phenomenon of finite length multi period contracts it is shown how costly information acquisition can account for multi period contracts which are of bounded length comparative statics results on how contract length responds to exogenous parameters such as the cost of information acquisition are also derived copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

cost of living clauses in union contracts determinants and effects this study investigates for the period 1969 81 the determinants of the incidence and strength of cost of living adjustment cola clauses in u s manufacturing and the effect of those clauses on wage inflation the sample includes approximately 5 570 union contracts in over 2 600 bargaining relationships the authors find that both union bargaining power and inflation uncertainty positively affected the probability that a cola clause was adopted as well as the strength of the clause adopted negatively influencing the incidence and strength of cola clauses during the period studied were unanticipated changes in an industry s prices the authors also find evidence that wage inflation was greater under contracts with uncapped colas than under all other contracts a result that also was positively influenced by the amount of unanticipated inflation from these results the authors suggest a number of possible trends in the use and effects of cola clauses

the determination of escalator clauses in collective agreements u ntil very recently the literature on the wider usage of escalator clauses has dealt mainly with their impact on inflation unemployment the trade balance and the exchange rate it is equally important however to understand why and in what circumstances employers and labor unions agree to incorporate such clauses in work contracts in the past few years shavell 1976 azariadis 1978 and blinder 1978 have outlined a theoretical framework for explaining the emergence of indexation to the best of our knowledge however none of the assumptions deriving from these models have been subjected to empirical testing the purpose of this paper is first to develop and test a number of these assumptions and second to consider the problem of simultaneity between two types of adjustments to inflation indexation versus shorter contract duration in the first section we summarize the contributions of the three aforementioned authors to the theory of wage indexation and extract from them a number of verifiable assumptions the second section provides an empirical framework since adjustments to uncertainty about inflation can take the form of shorter contract duration or indexation those two variables are simultaneously determined to overcome the problem of dummy endogenous variables in a simultaneous equation system we have applied the method suggested by heckman 1978 based on the use of maximum likelihood estimators in the third section we analyse the results and in the conclusion we draw their implications for economic policy

the effects of shock size and type on labor contract duration empirical studies of the relation between uncertainty and the length of union firm contracts have focused on the effects of inflation money supply or industry specific uncertainty this article describes two extensions of previous work first real aggregate uncertainty arising from oil shocks is incorporated into a contract duration model oil shocks significantly affect contract length in seven of 21 u s manufacturing industries second the model is used to test whether the duration of reopenable bargains is positively related to uncertainty associated with large shocks as has been described in danziger the evidence indicates some qualified support for this proposition

assessing the variability of inflation although there has been much argument over the impact of variable inflation rates upon economic performance there has been surprisingly little attempt to define the term variability of inflation carefully or to test proposed hypotheses connecting variability and the level of inflation precise definitions are given in the paper and a model is constructed showing that the level variability hypothesis may be formulated in terms of the presence of heteroscedasticity in a regression model this theoretical model is used to criticize existing studies while an empirical study with australian data illustrates the application of the approach

delays in renewal of labor contracts theory and evidence in many countries an expired labor contract is automatically extended during the often protracted delay before the new contract is signed our theoretical model focuses on macroeconomic factors in explaining the delay it emphasizes the importance of the realized nominal and real shocks and of the levels of nominal and real uncertainty the model is tested using israeli collective wage agreements where long delays are frequent the empirical findings strongly support the theoretical model thus nominal uncertainty is found to increase the delay and real uncertainty to decrease the delay but less in the public than in the private sector

uncertain effects of money and the link between the inflation rate and inflation uncertainty in the postwar period high rates of inflation are associated with high levels of inflation uncertainty in this paper i argue that the inflation rate and inflation uncertainty are linked by forecasters uncertainty about the impact of money growth on the price level and i present evidence indicating that this has been the case as long as the impact of money growth on the price level remains unpredictable then even predictable money growth will cause inflation uncertainty with its accompanying adverse effects on employment and output

promotional reviews an empirical investigation of online review manipulation abstract firms incentives to manufacture biased user reviews impede review usefulness we examine the differences in reviews for a given hotel between two sites expedia com only a customer can post a review and tripadvisor com anyone can post we argue that the net gains from promotional reviewing are highest for independent hotels with single unit owners and lowest for branded chain hotels with multiunit owners we demonstrate that the hotel neighbors of hotels with a high incentive to fake have more negative reviews on tripadvisor relative to expedia hotels with a high incentive to fake have more positive reviews on tripadvisor relative to expedia jel l15 l83 m31

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

the interaction between indexation contract duration and non contingent wage adjustment a model of the elasticity of indexation contract duration and non contingent wage adjustment is estimated using canadian wage agreements results suggest that the degree of indexation and contract duration are interdependent and are affected by their past values labour market conditions and inflation uncertainty the correlation between the industry product prices and the cpi affects the degree of indexation non contingent wage adjustment depends on expected inflation uncompensated past inflation duration and indexation values past and present and labour market conditions this model explains total wage adjustment as well as more aggregative models designed solely for that purpose

learning by striking estimates of the teetotaler effect we hypothesize that past strike experience will have a negative or teetotaler effect on a collective bargaining unit s propensity to strike in future negotiations other things being equal we test this using a unique micro level sample comprising four consecutive negotiations by 147 bargaining units in u s manufacturing industries controlling for observable and unobservable differences among bargaining pairs in the propensity to strike our results are consistent with the view that the experience of striking is indeed sobering lagged strike experience variables have a significantly negative effect on the propensity to strike in the current negotiation

real shocks efficient risk sharing and the duration of labor contracts it is widely believed that increased uncertainty leads to shorter duration of labor contracts this is indeed also the result obtained in the formal analysis in gray 1978 who concludes that a s expected increased variability regardless of source shortens contract length 1978 p 8 the basic argument is that production is inefficient unless the real wage happens to equate the demand and supply of labor and that the loss due to inefficient production increases with the deviation of the actual real wage from the real wage that would equate the demand and supply of labor it is assumed that the economy is exposed to both aggregate real shocks and nominal shocks but that the wage can only be indexed to the general price level an imperfect signal of the underlying shocks since uncertainty is greater for more distant periods the deviation of the actual real wage from the real wage that would equate the demand and supply also tends to be greater for more distant periods and it follows that the per period expected loss due to inefficient production increases with contract duration consequently increased uncertainty provides an incentive to reduce contract durations the reason contracts do not become arbitrarily short is the existence of a fixed contracting cost that militates against shortening the contract duration the oil price hikes of 1973 and 1978 presumably increased the a priori importance of aggregate real shocks and the efficientproduction hypothesis therefore leads one to expect a decrease in contract durations in the years following the price hikes the empirical fact however is that there has been no such tendency at least not in the united states this is clearly brought out in table i which shows that the average duration of major collective bargaining settlements negotiated in 1972 1987 has remained roughly constant

the impact of controls on wage contract duration incomes policies invariably arouse considerable opposition it is claimed that they are costly to administer that by tinkering with relative prices they riddle the economy with inefficiencies and that they politicise economic life it is also argued that where controls do have an impact on wage rates and prices a point which is by no means universally conceded agents are driven to costly behaviour designed to neutralise effective wage and price ceilings e g wage drift and quality changes it is fair to say however that most of the empirical work on incomes policies has been directed rather narrowly at the question of whether controls affect wage rates earnings or prices somewhat off the beaten track has been the interesting paper by pencavel i982 in which he argued that the existence of costs in revising wage rates calls for a distinction between the frequency and magnitude of wage revisions pencavel i982 also argued that wage controls are sometimes directed toward postponing wage increases in which case they affect the frequency of wage change while at other times they specify permissible ceilings on wage increases designed to affect the magnitude of wage adjustments however even this paper deals with wage issues broadly defined there has been little work done on the impact of controls on other aspects of labour market behaviour the purpose of this paper is to explore the impact of canada s recent experiment with controls on wage contract duration this long neglected variable has received theoretical attention in a number of recent papers including fischer i977 who argued that in a world of overlapping contracts monetary policy is effective despite rational expectations gordon i982 who considered the implications of contracting arrangements for wage flexibility and gray i978 and canzoneri i980 who explored the impact of uncertainty on contract duration an empirical paper by christofides and wilton i983 b confirmed gray s i978 and canzoneri s i980 conclusion that inflation uncertainty reduces the length of wage contracts however no one appears to have examined carefully the impact of controls on this important

modelling uncertainty a recursive var bootstrapping approach abstract this paper develops a recursive var bootstrapping approach to produce time series measures of nominal and real uncertainty the method is applied to us data and results compared to measures based on the survey of professional forecasters

an empirical model of wage indexation provisions in union contracts this paper describes the responses of index linked wage rates to concurrent price increases for a sample of canadian union contracts and then analyzes theseresponses in terms of a simple model of indexation to the aggregate price level the model highlights the importance of aggregate price movements in conveying information about industry specific prices the empirical analysis confirms that industry specific correlations between input and output prices and the consumer price index are important determinants of the flexibility of wages to prices across indexed contracts

determinants of contract duration in collective bargaining agreements the author develops a model incorporating variables that previous studies have hypothesized as determinants of labor contract duration then empirically tests the model using a data set containing

unions in a frictional labor market abstract a labor market with search and matching frictions where wage setting is controlled by a monopoly union that follows a norm of wage solidarity is found vulnerable to substantial distortions associated with holdup with full commitment to future wages the union achieves efficient hiring in the long run but hikes up wages in the short run to appropriate rents from firms without commitment in a markov perfect equilibrium hiring is too low both in the short and the long run the quantitative impact is demonstrated in an extended model with partial union coverage and multiperiod union contracting

are empirical measures of macroeconomic uncertainty alike there is a plethora of time series measures of uncertainty for inflation and real output growth in empirical studies but little is known whether they are comparable to the uncertainty measure reported by individual forecasters in the survey of professional forecasters are these two measures of uncertainty inherently distinct this paper shows that compared with many uncertainty proxies produced by time series models the use of real time data with fixed sample recursive estimation of an asymmetric bivariate generalized autoregressive conditional heteroskedasticity model yields inflation uncertainty estimates which resemble the survey measure there is however overwhelming evidence that many of the time series measures of growth uncertainty exceed the level of uncertainty obtained from survey measure our results highlight the relative merits of using different methods in modelling macroeconomic uncertainty which are useful for empirical researchers

the determinants of contract length an empirical analysis based on canadian micro data abstract recent theoretical work on the determinants of wage contract length focuses on inflation uncertainty as an explanatory variable additional to the more traditional variable of transactions costs this paper analyses the empirical determinants of contract duration using a large sample of contract data and confirms the conclusions reached in the theoretical literature

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

uncertainty and labor contract durations this paper provides an empirical investigation into the relationship between ex ante u s labor contract durations and uncertainty over the period 1970 to 1995 we construct measures of inflation uncertainty as well as aggregate nominal and real uncertainty the results not only corroborate previous findings of an inverse relationship between contract durations and inflation uncertainty but also document that this relationship extends to both measures of aggregate uncertainty we also explore the robustness of this relationship to various measures of inflation uncertainty that have appeared in the literature

the relationship between forecast dispersion and forecast uncertainty evidence from a survey data arch model this paper examines empirically the relationship between measures of forecast dispersion and forecast uncertainty from data on inflation expectations from the livingston survey series and the survey research center src survey series because the survey series do not provide probabilistic forecasts of inflation we derive measures of inflation uncertainty by modelling the conditional variance of the inflation forecast errors from the survey series as an autoregressive conditional heteroscedastic arch process the analysis is complicated by the fact that the overlap of forecast horizons for the survey series does not preclude the model s disturbance terms from displaying autocorrelation and also places a restriction on the specification for the arch measures of inflation uncertainty we estimate the model using hansen s 1982 generalized method of moments gmm procedure to account for the presence of serial correlation and conditional heteroscedasticity in the disturbance terms the results generally support the hypothesis that the measures of forecast dispersion across survey respondents are positively and statistically significantly associated with the measures of inflation uncertainty however the appropriateness of using forecast dispersion measures as proxies for inflation uncertainty is sensitive to the choice of the survey series

inflation uncertainty and contract duration this study examines the determinants of the duration of u s union contracts using a longitudinal contract data base support is found for the hypotheses that 1 inflation uncertainty reduces contract length and that 2 greater contracting costs as proxied by a strike variable and by previous duration increase contract length in addition contract duration is found to be greater for indexed contracts to be procyclical and to have increased over the sample period copyright 1989 by mit press

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

consensus and uncertainty in economic prediction we define consensus as the degree of agreement among point predictions aimed at the same target by different individuals and uncertainty as the diffuseness of the corresponding probability distributions this distinction is made operational with the aid of the nber asa survey data on matched point and probabilistic forecasts of inflation and the rate of change in gross national product the means of the two sets of forecasts agree closely standard deviations of point forecasts tend to understate uncertainty as measured by standard deviations of the predictive probability distributions however these measures of consensus and uncertainty are on the whole positively correlated there is evidence that expectations of higher inflation generate greater uncertainty about inflation tests also favor the hypothesis that a rise in inflation uncertainty has adverse effects on real growth

the effects of real and nominal shocks on union firm contract duration abstract the first theoretical works on labor contract length gray 1978 for example emphasized the existence of a negative relation between contract duration and uncertainty in estimating a linear version of gray s contract length model and an alternative model developed by christofides and wilton our empirical results indicate little evidence of a negative relationship between length and uncertainty in the united states furthermore our findings indicate the presence of significant differences across industries at the two digit sic level in the response of bargain duration to uncertainty