social interaction co worker altruism and incentives social interaction with colleagues is an important job attribute for many workers to attract and retain workers managers therefore need to think about how to create and preserve high quality co worker relationships this paper develops a principal multi agent model where agents do not only engage in productive activities but also in social interaction with their colleagues which in turn creates co worker altruism we study how financial incentives for productive activities can improve or damage the work climate we show that both team incentives and relative incentives can help to create a good work climate

mergers and business model assimilation evidence from low cost airline takeovers this paper examines mergers that lead to an almost immediate replacement of the target firm s business model in favour of that of the acquiring firm we examine the post merger behaviour of the two leading european dedicated low cost airlines easyjet and ryanair each acquiring another low cost airline respectively go fly and buzz we find that both takeovers had an immediate and sustained impact on both the pricing structures and the extent of inter temporal price discrimination used on the acquired routes with early booking fares noticeably reduced and only very late booking fares increased overall the analysis points to a pro competitive effect of both takeovers as a consequence of the introduction of the acquiring firms business models and associated yield management pricing systems

strategic pricing with customer rationing the case of primary metals firms in primary metal industries often charge subcompetitive prices and in periods of high demand they may ration their customers a model is developed to ex plain these empirical regularities in the model firms with market power are aware that the price they charge today affects their demand tomorrow in addition the strategic interaction among firms reinforces this intertemporal effect in the equilibrium of the two stage game oligopolists can price below marginal cost and when capacity constraints are introduced the equilibrium can involve rationing model predictions are assessed using market structure and technology data for several primary metal industries

on the optimal pricing policy of a monopolist the paper presents a simple explanation of price dispersion by a monopolist assuming only that consumers arrive in a random order and are served on a first come first served basis a firm can sometimes increase its profits by charging two different prices for the same good and rationing sales at the lower price however it is never necessary to charge more than two prices and a single price is sufficient as long as either the marginal revenue curve is everywhere downward sloping or the marginal cost of production is constant

value of time speeding behavior and gasoline prices abstract value of time vot is a key parameter in economics and policy this paper presents an alternative method to estimate vot by analyzing an hourly dataset on drivers speeding behavior as a function of the gasoline price our identification strategy is novel as it is based on the intensive margin in comparison previous studies reveal vot on the extensive margin but choice alternatives have multiple attributes thereby potentially confounding estimates consistent with the range of the prior literature we find a vot of about 50 of the wage rate and analyze sources of bias from accidents and traffic tickets these bias functions suggest that previous stated preference vot estimates are likely downward whereas previous revealed preference estimates are likely upward biased

price discrimination in free entry markets using a spatial model of monopolistic competition we investigate price discrimination in free entry zero profit markets we show that when brands are heterogeneous competition does not prevent discrimination the power to earn economic profits is not necessary for a firm to maintain discriminatory prices our model treats formally the fact that consumers difer not only in the utility they derive from a good but also in how strongly they prefer one brand over all others in markets where firms are very competitive sorting consumers on the strength on brand preference produces larger price differentials between groups than sorting on the basis of consumers reservation prices for the good when firms sort customers on the basis of strength of brand preference however we find that the output and welfare effects are generally less favorable than when sorting is more closely related to consumers reservation prices

high powered performance pay and crowding out of nonmonetary motives a previous literature cautions that paying workers for performance might crowd out nonmonetary motives to work hard empirical evidence from the field however has been based on between subjects designs that are best suited for detecting crowding out due to low powered incentives high powered incentives in the workplace tend to increase output but it is unknown whether this masks crowding out this paper uses a within subject experimental design and finds evidence that crowding out also extends to high powered incentives in a real work setting with paid workers there is individual heterogeneity however with a minority of workers reporting crowding in of motivation thus the impact of performance pay might depend on the mix of worker types data and the online appendix are available at https doi org 10 1287 mnsc 2017 2846 this paper was accepted by uri gneezy behavioral economics

screening for managerial objectives the debate between agency and stewardship theorists on the nature of managerial objectives in itself implies that a principal may be uninformed about managers objectives this article introduces a model of adverse selection in managerial types where classically opportunistic agents are contrasted with stewards who exhibit intrinsic preferences for the organization s success and experience betrayal crowding out when they are incentivized as if they were agents the analysis characterizes stewardship inefficiencies not previously identified by stewardship theorists this inefficiency is minimized via a menu of contracts that emphasizes the fixed component of pay for stewards moreover steward run firms are more successful than agent run firms

altruism within the family reconsidered do nice guys finish last this paper criticizes the view that altruism either increases the benefits of group interactions or improves the allocation of resources within families the authors identify a variety of circumstances in which members of a group would prefer to interact with less altruistic individuals and in which the efficiency of resource allocation is inversely related to the prevailing degree of altruism reasons that altruism might be a counter productive social force include 1 it can alter the social utility possibility frontier in surprising and sometimes unfortunate ways 2 it can entail exploitability causing family members to behave in ways that leave all parties worse off 3 altruists may take inefficient actions to preempt exploitation and 4 family members may establish efficient resource allocation by punishing selfish behavior a rise in the level of altruism may lead to the exclusion of certain punishment strategies on the grounds of credibility 1 general positive result is that sufficiently high levels of altruism almost always lead to efficient resource allocation one should not necessarily expect to find strong altruistic linkages between spouses nor should altruism necessarily contributed to marital stability in addition to the connections between this work and the literature on family behavior this analysis has broader implications concerning the role of altruism in society and the evolution of social conscience

on existence and uniqueness of equilibrium in a class of noisy rational expectations models i study a general class of noisy rational expectations models that nests the standard grossman and stiglitz 1980 and hellwig 1980 models but relaxes the usual assumption of joint normality of asset pay offs and supply and allows for more general signal structures i provide a constructive proof of existence of equilibrium characterize the price function and provide sufficient conditions for uniqueness within the class of equilibria with continuous price functions which are met by both the grossman and stiglitz 1980 models and the hellwig 1980 models with a continuum of investors my solution approach does not rely on the typical conjecture and verify method and i exhibit a number of non normal examples in which asset prices can be characterized explicitly and in a closed form the results presented here open up a broad class of models for applied work to illustrate the usefulness of generalizing the standard model i show that in settings with non normally distributed pay offs shocks to fundamentals may be amplified purely due to learning effects price drifts can arise naturally and the disagreement return relation depends in a novel way on return skewness

the evolution of u s airline competition studies by academic economists were a significant force in the movement towards deregulation of the domestic airline industry in the early 1970s levine 1965 jordan 1970 keeler 1972 douglas and miller 1974 during the critical 1977 78 period in which deregulation was imposed first de facto by the civil aeronautics board cab and then de jure by congress the chairman and vice chairman of the cab were economists for the 14 years since deregulation economists have continued intensive study of the industry in part because of the unusual availability of reliable firm and transaction level data and in part because of the rare opportunity to observe an industry as it evolves from strict economic regulation to fairly unimpeded competition and strategic behavior the simplest prediction of economists about airline deregulation and one of the few on which nearly all economists agreed was that deregulation would improve consumer welfare in comparison to continued price and entry regulation fourteen years later nearly all economists still agree on this though the degree of enthusiasm for the deregulation outcome varies considerably there was substantial disagreement among economists about the market structure that would result because studies of scale economies in the airline industry had concluded that none existed beyond the scale of the smaller major airlines of the 1970s caves 1962 eads et al 1969 many economists argued that deregulation would result in more than the 11 major airlines that existed at the time of deregulation others predicted that only a few or possibly only one airline would survive at a large scale two noted university of chicago economists sam peltzman and lester telser made a bet in 1979 on whether

customer return policies for experience goods this paper studies the economic rationale for customer return policies by focusing on the experience goods aspect of many products return policies allow consumers to defer their purchasing decisions until after they gain some experience with goods in so doing they insure consumers against ex post loss which allows a monopoly seller to charge more than otherwise it is shown that the seller adopts the return policy when consumers are highly risk averse or retail costs are high consumers are strictly better off under the return policy but there is too little adoption of the policy in equilibrium copyright 1996 by blackwell publishing ltd

price discrimination through refund contracts in airlines this paper shows how an airline monopoly uses refundable and non refundable tickets to screen consumers who are uncertain about their travel our theoretical model predicts that the difference between these two fares diminishes as individual demand uncertainty is resolved using an original data set from u s airline markets we find strong evidence supporting our model price discrimination opportunities through refund contracts decline as the departure date nears and individuals learn about their demand

dynamic pricing through discounts for optimizing multiple class demand fulfillment in a multiple customer class model of demand fulfillment for a single item we consider the use of dynamic price discounts to encourage backlogging of demand for customer classes denied immediate service customers are assumed to arrive over several stages in a period and customer classes are distinguished by their contractual price and sensitivity to discounts through dynamic programming we determine the optimal discounts to offer assuming a linear model for the sensitivity of customers to such inducements we show that customers are served in class order and allocation of inventory to demand is determined by considering the current number of customers backlogged as well as the current inventory position through comparison to a naive supplier allocating inventory first come first served with no discounting we show that profits are primarily influenced by the allocation of capacity and the use of price discounts primarily benefits the second class customers overall fill rate heuristics for implementation of the solution in real time settings are given

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

a theory of clearance sales clearance sales are widely used by firms as an intertemporal selling policy in particular in markets where firms face demand uncertainty and need to choose capacity in advance clearance sales consist in charging a high price initially but then lowering the price in the sales period high valuation consumers purchase the good at the high initial price so as to avoid rationing at the low price while low valuation consumers wait for the price to drop we develop a simple model of intertemporal monopoly pricing under demand uncertainty and show that clearance sales may be the optimal intertemporal selling policy

screening competition and job design economic origins of good jobs in recent decades many firms offered more discretion to their employees often increasing the productivity of effort but also leaving more opportunities for shirking these high performance work systems are difficult to understand in terms of standard moral hazard models we show experimentally that complementarities between high effort discretion rent sharing screening opportunities and competition are important driving forces behind these new forms of work organization we document in particular the endogenous emergence of two fundamentally distinct types of employment strategies employers either implement a control strategy which consists of low effort discretion and little or no rent sharing or they implement a trust strategy which stipulates high effort discretion and substantial rent sharing if employers cannot screen employees the control strategy prevails while the possibility of screening renders the trust strategy profitable the introduction of competition substantially fosters the trust strategy reduces market segmentation and leads to large welfare gains for both employers and employees

durable services monopolists do better than durable goods monopolists the authors consider a monopolist who can commit to a price path when selling a good for which individual consumers demand at most one unit only if the monopolist can also commit to destroying unpurchased stock and the timing of stock release can she earn more than a static monopolist this additional commitment power has empirical revelance for a wide range of goods that the authors term durable services the inability to store output facilitates price discrimination by a durable services monopolist by permitting the credible threat of rationing the authors detail sufficient conditions for a durable services monopolist to produce more than a static or durable goods monopolist produces

competition and price dispersion in the airline markets we use two ticket level data sets on one way domestic flights for the us airlines to examine the potentially nonlinear relationship between price dispersion and three forms of competition inter firm inter flight and frequency competitions the linear relationship is rejected at any conventional significance levels in particular there is an s shaped relationship between market concentration and price dispersion this can be a reason for the mixed results in the literature roughly speaking the inter flight and frequency competitions have opposite effects on price dispersion finally in general the size of aircraft has a positive effect on price however for very large aircraft the relationship becomes negative

gift exchange incentives and heterogeneous workers by incorporating reciprocity in an otherwise standard principal agent model i investigate the relation between monetary gift exchange and incentive pay while allowing for worker heterogeneity i assume that some but not all workers care more for their principal when they are convinced that the principal cares for them the principal can be egoistic or altruistic absent worker heterogeneity an altruistic principal signals his altruism by offering relatively weak incentives and a relatively high expected total compensation however the latter is not always required to credibly signal altruism furthermore since some workers do not reciprocate the principal s altruism the principal may find it optimal to write a contract that simultaneously signals his altruism and screens reciprocal worker types such a contract is characterised by excessively strong incentives and a relatively high expected total compensation

explaining gift exchange the limits of good intentions this paper explores the limitations of intention based social preferences as an explanation of gift exchange between a firm and a worker in a framework with one self interested and one reciprocal player gift giving never arises in equilibrium instead any equilibrium in a large class of multistage games must involve mutually unkind behavior of both players besides gift exchange this class of games also includes moral hazard models and the rotten kid framework even though equilibrium behavior may appear positively reciprocal in some of these games the self interested player never benefits from reciprocity we discuss the relation of these results to the theoretical and empirical literature on gift exchange in employment relations

efficient and competitive rationing abstract the contracts that interest us here are called priority service contracts the salient feature of such contracts is that they specify each customer s priority in obtaining service that is they specify the tank order in which a customer is served out of the available supply until all customers are served or supply is exhausted such contracts essentially establish queues for customers in section 1 the author provides some background about priority service section 2 formulates a basic model and offer several illustrations also describes two main examples that motivate the theoretical development section 3 derives some key results that show how the prices of priority service contracts are designed to induce customers to self select efficient service orders in section 4 the author discusses various ways that state enterprises can organize markets that implement priority service efficiently in section 5 we study the operation of competitive markets for priority service section 6 concludes with some summary remarks two themes are emphasized one is that a state enterprise can promote substantial efficiency gains by substituting priority service for absent spot markets the other is that oligopolistic firms may have insufficient incentives to offer efficient product diversity consequently allocative efficiency depends on entry of numerous firms even so dispersal of supplies among many firms can prevent productive efficiency when there are advantages from pooling supplies

optimal provision of public goods with altruistic individuals abstract we study the optimal provision of public goods in the context of a special class of altruistically linked utility functions we show that the usual samuelson condition hold as if the utility functions independent

the interaction of explicit and implicit contracts a signaling approach abstract we analyze the interaction of explicit and implicit contracts in a model with selfish and fair principals fair principals are willing to honor implicit agreements selfish principals are not we investigate a separating equilibrium in which principals reveal their type through the contract offer to the agent explicit and implicit contracts are shown to be substitutes since the agent learns the principal s type a selfish principal must rely on explicit incentives a fair principal by contrast can effectively induce implicit incentives and does not need to use explicit incentives we also find a strategic complementarity between explicit and implicit incentives

on acquisition of information in financial markets in their paper information acquisition in financial markets this journal 2000 barlevy and veronesi present a model of a one period financial market and claim that for an open set of parameter values the value of information increases with the mass of informed agents that claim is shown here to be false the property of strategic substitution is robust in their model

systematic peak load pricing congestion premia and demand diverting empirical evidence abstract this paper finds empirical support to systematic peak load pricing in airlines higher fares in ex ante known congested periods it estimates a congestion premia and supports the main empirical prediction in gale and holmes gale i holmes t 1993 advance purchase discounts and monopoly allocation of capacity american economic review 83 135 146 less discount seats on peak flights

intention based reciprocity and the hidden costs of control abstract empirical research suggests that despite strengthening conventional incentives to put in effort exerting control might reduce worker performance the present paper shows that intention based reciprocity can explain such hidden costs of control if individuals differ in their propensity for reciprocity and preferences are private information not being controlled might then be considered to be kind because not everybody reciprocates not being controlled with high effort this argument contrasts existing theoretical wisdom on the hidden costs of control that is almost exclusively based on signaling

shortages segmentation and self selection this paper considers the rationality and implications of using shortages as a self selection device shortages lead to uncertain access and enable sellers to offer ensured access either to the good or to a preferred variety of the good at a higher price or as part of a bundle it is shown that such activities allow firms to span nonconcavities in their revenue function firms respond to changes in demand and costs through changes in quantity and or the premium for ensured access but not through changes in the base price

advance purchase discounts and monopoly allocation of capacity optimal pricing by a monopoly airline that faces capacity constraints during the peak demand period is studied the existence of capacity constraints means that in order to expand output the airline must divert demand from the peak period to the off peak period a particular advance purchase discount policy is shown to be the profit maximizing method of selling tickets if the advance purchase requirement were infeasible output and total surplus would both be lower jel l12 substantial discounts for air travel are generally available to travelers who are willing to purchase tickets a week or more in advance of the departure date this paper demonstrates why the imposition of an advance purchase requirement may be a profit maximizing strategy for a monopoly airline facing capacity constraints during times of peak demand 1 the practice of imposing an advance purchase requirement on discount tickets is also placed in a favorable light in terms of its impact on social

information acquisition in financial markets tions agents have exponential utility and random variables are normally distributed these assumptions are often necessary to obtain closed form solutions we present an example with alternative assumptions and demonstrate that some of the conclusions from previous literature fail to hold in particular we show that in our example as more agents acquire information prices do not necessarily become more informative and agents may have greater incentive to acquire informatioln learning can therefore be a strategic complement allowing for the possibility of multiple equilibria

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

social comparison and performance experimental evidence on the fair wage effort hypothesis we investigate the impact of wage comparisons for worker productivity we present three studies which all use three person gift exchange experiments consistent with akerlof and yellen s 1990 fair wage effort hypothesis we find that disadvantageous wage discrimination leads to lower efforts while advantageous wage discrimination does not increase efforts on average two studies allow us to measure wage comparison effects at the individual level we observe strongly heterogeneous wage comparison effects we also find that reactions to wage discrimination can be attributed to the underlying intentions of discrimination rather than to payoff consequences

friends or foes optimal incentives for reciprocal agents abstract widely used performance based contracts put positive or negative externalities on co workers these externalities have been proven to shape an organization s working climate especially when workers exhibit social preferences however it is a priori unclear whether a more friendly or a more competitive working environment should be encouraged in this paper we develop a theoretical model in which a self interested principal has to motivate a set of agents to work hard agents are symmetric potentially risk averse and exhibit reciprocity concerns towards each other we show that the principal reduces the cost of achieving high effort provision by designing a psychological gift exchange game thereby replacing monetary with psychological incentives we find that the optimal incentive scheme depends on the interplay between the agents attitudes towards risks and their preferences for reciprocity in particular the optimal scheme implements i a relative performance compensation scheme which induces an exchange of unkindness if agents are relatively little risk averse and ii a joint performance compensation scheme which induces an exchange of kindness if agents are sufficiently risk averse our findings can explain some puzzling empirical results

evidence of directional price discrimination in the u s airline industry abstract this paper explores possible determinants that may affect an airline s decision to charge passengers different roundtrip fares depending on trip origin a case of directional price discrimination such fare differences cannot be the result of differences in cost as the cost of flying a roundtrip passenger does not significantly differ depending on direction it is argued that directional fare differences result from airlines recognizing that passenger price elasticities differ between route endpoints a price discriminating airline will then charge a higher roundtrip fare at the endpoint where the passenger price elasticity of demand is comparatively lower evidence is found suggesting that airlines do use differences in income to price discriminate when setting roundtrip fares fares are found to be 0 18 0 43 higher on average for each 1000 difference in average per capita income between origin and destination metro areas this finding is sensible assuming that higher incomes reduce the price elasticity of demand for air travel with richer passengers being less sensitive to the cost of travel

on the relevance and composition of gifts within the firm evidence from field experiments we investigate the economic relevance and the composition of gifts within a firm where output is contractible we develop a structural behavioral model that identifies workers optimal reaction to monetary gifts received from their employer we estimate the model using data from two separate field experiments conducted within a tree planting firm we use the estimated structural parameters to generalize beyond the experiment simulating how workers would react to different gifts on the part of the firm within different labor market settings we find that gifts have a role to play within this firm increasing in importance when the workers outside alternatives deteriorate profit maximizing gifts would increase profits within slack labor markets by up to 10 on average and by up to 17 for certain types of workers

when choosing makes a good thing better temporal variations in the valuation of hedonic consumption abstract this research investigates how the valuation of delayed consumption of hedonic products such as concerts and chocolate varies with the passage of time between choice and consumption the authors find that when consumers make their own choices they exhibit increases in evaluations of delayed consumption but only if the interval between choice and consumption is relatively short the effect attenuates over longer periods resulting in an inverted u shaped relationship between evaluations and time in contrast when somebody else chooses the same option for the consumer evaluations decrease with the passage of time these effects depend on the extent of intrinsic motivation toward the object of consumption and occur only for consummatory consumption that is of inherent interest moreover anticipatory increases in evaluations before consumption have ironic negative effects on postconsumption evaluations the authors discuss implications and directions for further research