efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

an evolutionary and institutional view of the behavior of public and private companies this paper reports on an extensive study designed to explain the variations both within and among three public and three private electric utilities in their impact on environmental quality the more general purpose is to demonstrate the value of a disaggregated model of the behavior of an organization based on the intendedly rational but imperfect choices of its individual members the analysis focuses on what determines the opportunity sets objectives and beliefs of those members and on how the organization aggregates their choices into corporate patterns of action internal features of the organization such as how tasks and authority are divided information processed and individuals recruited and rewarded are thus potentially important explanatory variables provided as is often the case that external pressures and constraints are not perfectly coercive this conceptual framework would appear to be applicable to a wide variety of public private and nonprofit organizations while generating a number of the better known models of firm behavior as special cases it is designed both to provide a framework for constructing explanations of particular past events and to give rise to testable generalizations about the behavior of organizations particularly ones that might be useful for policy purposes this necessarily brief paper presents only the general arguments and results with illustrations from the case material since the case studies suggested much of the theoretical analysis they do not provide strictly independent support for the propositions to be presented for a full account see roberts 1975

the principal agent relationship with an informed principal ii common values in many circumstances a principal may have relevant private information when she proposes a contract to an agent we analyze such a principal agent relationship as a noncooperative game the principal proposes a contract which is accepted or rejected by the agent who for most of our analysis has no private information the contract is executed if accepted otherwise the reservation allocation takes effect this allocation may be determined by a pre existing contract which the principal by her proposal is attempting to renegotiate or it may simply be the no trade point in this paper we assume that the principal s information directly affects the agent s payoff before solving the game we discuss pareto efficiency with asymmetric information we define an incentive compatible allocation to be weakly interim efficient wie if there exists no alternative incentive compatible allocation that both parties prefer for all possible beliefs that the agent might have about the principal s private information type we show that any wie allocation is interim efficient ie for some beliefs the rothschild stiglitz wilson rsw allocation relative to the reservation allocation l is the allocation that maximizes the payoff of each type of principal within the class of incentive compatible allocations that guarantee the agent at least the utility he gets from a irrespective of his beliefs about the principal s type the equilibrium set of the contract proposal game consists of the allocations that weakly pareto dominate the rsw allocation thus there is a unique equilibrium outcome if and only if the latter is ie and the equilibrium outcome is the rsw allocation itself after characterizing the equilibrium allocations we study those that are renegotiation proof when either the principal or the agent leads the renegotiation we then compare our contract proposal game which is a signaling model with its screening counterpart we conclude by extending our results to the case in which the agent as well as the principal has private information under the assumption of quasi linear preferences

contract delegation with bargaining i introduction public procurement is a very important part of economic activity it accounts for about 20 of gross domestic product gdp in the united states and 16 in the european union eu countries 1 therefore it is not surprising that many interest groups are at the stake whenever aspects of public procurement procedures are discussed to limit the influence of these groups the purpose of legislation in the united states and the european community has been to unify public procurement procedures and restrict the discretionary power of contracting officers and agencies at lower administrative levels the federal acquisition regulation far in 2005 in the united states and directive 2004 18 ec of the european parliament in 2004 are examples of this one of the most important aspects in public procurement is the extent to which subcontracting is allowed traditionally subcontracting has been judged negatively for example in construction which amounts to a substantial part of public procurement the far prevents contracts from being awarded to a single firm that supplies both design and engineering services i e it requires contract centralization however recently most states have legislations that allow for exceptions like the use of the design build method i e they allow contract decentralization lam chan and chan 2006 report that nowadays more than one third of the construction projects in the united states and up to 50 in japan use the design build approach economic theory should explain whether this is because of the increased influence of pressure groups or if there exists an economic rational for this tendency however economic theory has had difficulty in explaining the superiority of subcontracting to see this consider a general contractor or principal who needs two suppliers or agents to realize a project either he she can contract directly both of them or contract only one supplier and let him her subcontract the other subcontracting obviously implies a loss of control over the subcontractee s contract for the general contractor however because he she can always replicate the same contracts if he she contracts directly with both suppliers it is not easy to see the advantages of subcontracting a common assumption in this literature is that the principal has all the bargaining power and can make a take it or leave it offer to the agent regarding public procurement this is a realistic assumption in cases in which there are many suppliers but it fails to apply in cases in which the principal only can choose among a small number of suppliers for example this is the case in public procurement of defense systems aeronautic and space equipment or specific construction facilities such as water depuration plants airports or electric power plants although procurement in these cases is also based on fixed price cost reimbursement and incentive contracts usually it also allows for negotiations so section 15 3 of far states that negotiations are exchanges in either a competitive or sole source environment between the government and offerors that are undertaken with the intent of allowing the offeror to revise its proposal these negotiations may include bargaining bargaining includes persuasion alteration of assumptions and positions give and take and may apply to price schedule technical requirements type of contract or other terms of a proposed contract this means that economic theory should take into account that contract design includes bargaining between parties at some stage of the process when contract centralization and decentralization are compared to analyze this issue a very stylized model is used to examine the advantages of centralized and decentralized organizations two agents work jointly on a project for a principal usually in public procurement this is a contracting officer who represents a public agency

decentralization hierarchies and incentives a mechanism design perspective separation of ownership from management multidivisional firm organizations delegation of production decisions to worker teams delegation of pricing and advertising decisions to retail franchisers reliance on intermediaries in trade or finance and distribution of regulatory authority across different agencies represent examples of organizations that delegate and distribute decision making authority instead of centralizing it this paper reviews literature on costs and benefits of delegated decision making in hierarchical organizations or contracting networks with regard to problems of incentives and coordination it starts by describing incentive and coordination costs of delegation in simple canonical examples of hierarchies where both information and incentives of different decisionmakers differ one class of models pertain to contexts where the classical revelation principle applies i e where costs of contractual complexity information processing or communication are absent agents do not collude and the mechanism designer can commit to the mechanism delegation may conceivably entail a loss of control and coordination arising from the divergence of information and incentives sufficient and necessary conditions for this loss to be mitigated entirely include risk neutrality top down contracting and monitoring of transfers or production assignments between subordinates the next class of models introduces communication costs that restrict the performance of centralized arrangements relative to delegation owing to a resulting loss of flexibility which has to be traded off against possible control losses of delegation finally consequences of collusion among agents is discussed which typically enlarge the range of circumstances under which delegation can attain optimal second best outcomes the paper concludes with a discussion of the relevance of this theoretical literature to recently emerging empirical studies of industrial organizations where delegated decision making plays an important role adoption of innovative human resource management practices new information technologies and retail franchising

undocumented immigration and unemployment of u s youth and minority workers econometric evidence we use census based data on the state distribution of the undocumented alien population in analyzing the relationship between that population and unemployment among youth and minority workers in the united states regression results from our two equation models do not support commonly expressed fears that undocumented immigration has caused any substantial increases in joblessness among these presumably vulnerable groups although small amounts of displacement are indicated a sizeable reverse effect is evident undocumented immigrants tend to concentrate in states where labor markets for these marginal groups are most favorable excerpt

regional labor markets and the determinants of wage inequality from 1972 to 1990 the united states experienced the largest increase in wage inequality of any developed country the spread in log wages between the 90th and 10th percentiles of the male wage distribution increased by about 60 points and inequality increased within virtually every demographic or skill category of the labor force see chinhui juhn et al 1993 various explanations have been offered including changes in the relative demand for skill intensive goods international trade immigration of less skilled workers and increased labor force participation of women yet attempts to quantify the relative importance of these factors have not met with much success this leaves skill biased technical change as the residual claimant that rationalizes the data this paper uses regional differences in the evolution of wage inequality to provide new evidence on the determinants of relative wages using a model of factor demand in geographic markets i isolate contributions of i changing skill ratios in the labor force ii increased participation of women iii technical change and iv changes in the industrial composition of labor demand the data indicate that changing skill ratios and women s labor supply have affected the wages of low skilled men in the west the data indicate that increased immigration of less skilled hispanic and asian workers has adversely affected the wages of natives causing a greater increase in inequality there than in any other region of the country i modeling wage inequality in regional markets

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

immigration from poor to wealthy countries experience of the united states the u s experience with immigration from poor countries is examined using the results of two projects carried out by the national bureau of economic research questions considered include what determines the supply of immigrants how such immigrants fare in the u s job market and how this immigration affects the prospects of native born workers annotation

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

collusion in organizations the principal agent theory developed in the 1980s has produced a large set of insights for understanding how contracts can be established within organizations this theory explains how a principal who offers a contract to an agent should structure this contract to overcome at least partially the asymmetries of information he faces by now optimal contracts with adverse selection or hidden knowledge with moral hazard or hidden action or with nonverifiability by a third party of some variables known ex post by both the principal and the agent are relatively well understood despite insightful extensions to multiagent or multiprincipal organizations this body of knowledge falls short of a comprehensive theory of organizations one major reason beyond the restrictive nature of the organizations studied lies in the noncooperative approach generally followed to model multiagent settings indeed in this standard paradigm the cooperation of agents desired by the principal can be induced by the contracts he offers to the agents each of them maximizing his own welfare given the behavior of the other agents what remains is that the principal has complete control of the game played by the agents unwanted communication or side contracting between agents can be prevented this is a rather unrealistic assumption contract theory teaches us that the principal structures the contracts so as to minimize the informational rents given up to the agents because of their informational advantages it is quite natural to expect a collective reaction on the part of the agents to protect their rents we need to understand how agents can react to the rules of an organization and beyond to understand how a principal who is aware of the incentives for collusion should design the organization modeling coalitional or collusive behavior and characterizing the regulatory responses to such behavior is a major task of organization theory the empirical relevance of this line of work is easy to establish a clear example is that of auctions for which the occurrence of cooperative behavior between bidders is a general and well documented phenomenon see porter and zona 1993

a theory of bureaucratization based on reciprocity and collusive behavior this paper addresses how an organization becomes a bureaucracy bureaucratization emerges from a self enforced norm of reciprocity between agents in an organization who exchange favors and promote subgoals which differ from the objective of the firm such collusive behavior becomes harder and harder to prevent over time as a result incentive schemes lose their flexibility and bureaucratization becomes a necessary equilibrium phenomenon in the long run the distribution of agents private information their preferences for the future and the force of the social norm of reciprocity are analyzed in terms of their effects on the long run behavior of the organization and on the speed of the bureaucratization process i introduction any theory of bureaucracy concerned with the analysis of the public sector or designed to understand the behavior of private organizations2 must find out why states and firms end up being more and more inefficient over time why organizations become routinized as they grow older and why unflexible rules unavoidably emerge in the long run in other words any theory of bureaucracy should also be accompanied by a theory of bureaucratization which could help us to understand organizations from a dynamic point of view following weber 1978 we hereafter define the bureaucratization of an organization as the process by which it adopts less flexible rules over time the aim of this paper is to explain this process in the case of the theory of the firm the formation of a dynamic theory of organizations has been on the research agenda at least since marshall who was the first to point out that old organizations and firms tend to decline over time first such

commitment through renegotiation proof contracts with third parties the paper analyzes contracts as means of strategic commitment that is commitment against outside parties to the agreement it considers the example of an incumbent firm which enters a contractual relationship with its workers in order to deter entry it assumes away the possibility for the parties to precommit not to make pareto improving renegotiations of the agreement once entry has taken place under symmetric information the contract is thus found to be useless for entry deterrence if the incumbent firm or workers possess some private information excessive post entry production levels can however be sustained ex post since output reductions may not be incentive compatible while information asymmetries are usually welfare decreasing when the goal is optimal risk sharing they can thus be welfare improving for the contracting parties when commitment against outsiders is the goal of the contract the role of the renegotiation process as a constraint on sustainable agreements is stressed in the paper and the general relevance of strategic contractual commitment is discussed

the 2007 nobel memorial prize in mechanism design theory this paper provides an overview of mechanism design theory and explains the roles played by leonid hurwicz eric maskin and roger myerson in the development of this field

the endogenous transaction costs of delegated auditing abstract this paper analyzes the deadweight loss of delegated auditing in a three tier hierarchy in a costly state verification model this cost depends on the endogenous information structure the auditor s degree of risk aversion and the size of the punishment we identify the optimal contractual outcome of this delegation model with the solution obtained in a standard three tier hierarchical model of collusive auditor we then derive from this identification the set of parameters of the physical environment which may affect the efficiency of side contracting within the firm

can the theory of incentives explain decentralization this survey presents within a single model three theories of decentralization of decision making within organizations based on private information and incentives renegotiation collusion and limits on communication are three sufficient conditions for decentralization to be optimal cet article presente dans un cadre unifie un survol de trois theories de la decentralisation de la prise de decision dans les organisations ces theories reposent sur la presence d information privee et des incitations qui en decoulent la renegociation la collusion et les limites a la communication representent trois conditions suffisantes pouvant expliquer l optimalite de la decentralisation this abstract was borrowed from another version of this item

assimilation changes in cohort quality and the earnings of immigrants this paper reexamines the empirical basis for two facts that seem to be found in most cross section studies of immigrant earnings 1 the earnings of immigrants grow rapidly as they assimilate into the united states and 2 this rapid growth leads to many immigrants overtaking the earnings of the natives within 10 15 years after immigration using the 1970 and 1980 u s censuses this paper studies the earnings growth experienced by specific immigrant cohorts during the period 1970 80 it is found that within cohort growth is significantly smaller than the growth predicted by cross section regressions for most immigrant groups this differential is consistent with the hypothesis that there has been a secular decline in the quality of immigrants admitted to the united states

international migration under asymmetric information international migration under asymmetric information usually differs from international migration under symmetric information and often quite dramatically so and in counterintuitive ways since in real life information is indeed asymmetric it is somewhat surprising that hitherto the study of international migration has by and large proceeded without explicit recognition of the effect of informational asymmetry in this paper we show that when at the lowest skill level migration is desirable i e if the discounted wage differential is positive for the lowest skill level the introduction of asymmetric information results in a reduction of the quality and quantity of international migration or has no effect at all when at the lowest skill level migration is not desirable the discounted differential is not positive at the lowest skill level the introduction of asymmetric information may either result in migration by all or none when under asymmetric information workers can at some cost to themselves report to foreign employers their individual skill thus dissociate themselves from the group effect then provided the cost is small either a u pattern of migration with respect to skill level emerges or migration is uniformly pursued by all though some do and some do not invest in signalling when the source consists of more than 1 poor country it is impossible to predict migration under asymmetric information from a given country without explicitly accounting for changes in the parameters of the other for example a favorable change encouraging less migration taking place in 1 country will through a distinct impact on the overall composition of migration reduce migration from the other country finally allowing employers to discover after a while the true productivity of individual migrant workers we obtain the somewhat surprising result that under a reasonable set of assumptions eventual discovery may increase the quantity and quality of migration and also increase the wage enjoyed by the low quality migrants eventual discovery serves to mitigate the impact of group averaging that deters migration by the high skill workers due to migration of some such workers the prediscovery wage of the low skill workers arises in our case sufficiently to outweigh the effect of the future wage decline due to discovery authors

the labor market skills of recent male immigrants evidence from the current population survey using data from special supplements to the current population survey cps the authors track the education and hourly earnings of recent male immigrants to the united states in terms of these measures of labor market skills the cps data suggest that immigrants who came in the late 1980s were more skilled than those who arrived earlier in the decade this pattern represents a break from the steady decline in immigrant skill levels observed in 1940 80 census data despite the encouraging trend over the 1980s however the average skills of recent immigrants remain low by historical standards

labor market discrimination against hispanic and black men h ispanic american men have lower average wage rates than white non hispanics in 1975 the average white non hispanic male wage earner in the united states earned 5 97 an hour mexican men earned 4 31 72 as much as white non hispanics puerto rican men earned 4 52 76 as much and cuban men earned 5 33 89 as much as white non hispanics by way of comparison black men s average wages in 1975 were 4 65 78 of the white male wage several possible reasons for the hispanics lower wages come to mind among them are age and education geographic location immigration language difficulties and discrimination for example as shown in table 1 mexicans and puerto ricans are younger on average than the white non hispanic population and earnings tend to rise with age hispanics have lower average levels of education than white non hispanics and wages are positively associated with education many mexican americans live in the southwest where prices are relatively low moreover hispanics are more likely to be recent immigrants and to lack fluency in english than white non hispanics and so to be at a disadvantage in the labor market in addition there is a widespread belief that hispanics suffer from employment discrimination and cannot obtain the wages that their human capital would command if they were non hispanic whites how much of the wage differentials described above are due to each of these factors and to other inter group differences in wage related characteristics in particular how much impact does labor market discrimination have on the average hispanic man s wage and how does this compare with discrimination against blacks this paper provides answers to these questions a few other efforts have been made to analyze the relative earnings of hispanic and white nonhispanic men using 1960 and 1970 census data fogel 1966 poston and alvirez 1973 poston alvirez and tienda 1976 long 1977 and gwartney and long 1978 we use more recent data from the 1976 survey of income and education this data set enables us to measure wage rates more accurately and to specify the wage function more completely than does the census unlike previous analysts in estimating the wage function we take account of possible selectivity bias due to the distinction between average wage offers and average observed wages thus we hope to obtain a more accurate and up to date measure of labor market discrimination against hispanic men section ii explains the method used to separate the minority white non hispanic wage differential into the portions due to differences in average characteristics and the portion due to differences in unobserved factors and discrimination taking into account the possibility of selectivity bias in the observed wage sample section iii describes the data used in the study and the specification of the wage equation the breakdown of the observed wage differentials into components due to differences in participation in the wage and salary sector local price levels average characteristics and discrimination are presented in section iv section v summarizes our findings and discusses their implications for efforts to improve the economic situation of hispanics in the united states

immigrant earnings relative to what the importance of earnings function specification and comparison points immigrant relative earnings estimates are sensitive to the choice of comparison point and the specification of earnings non sample mean comparisons borjas 1985 understate relative earnings simple earnings specifications linear education quadratic experience overstate relative earnings for both poorly and well educated immigrants specifications which ignore omitted variables understate the relative earnings of poorly educated immigrants and overstate those of well educated ones although measures of assimilation and changes in immigrant quality are insensitive to earnings specification they indicate strong earnings growth for post 1964 immigrants an overall decrease in immigrant quality and an increase in mexican immigrant quality

signalling and renegotiation in contractual relationships this paper examines how the possibility of renegotiation affects contractual outcomes in signaling games when an infinite number of rounds of renegotiations are allowed before contracts are executed the main results of the paper are 1 contracts may still contain distortions 2 the popular efficient separating equilibrium outcome is never an equilibrium outcome with renegotiation 3 incentive compatibility constraints can be generalized to incorporate renegotiation 4 equilibrium outcomes can be separating and nevertheless depend on the uninformed player s prior and 5 renegotiation in signaling games may lead to outcomes similar to equilibrium outcomes of screening games in which multiple contract purchases are allowed copyright 1993 by the econometric society

the economics of immigration this literature review concerns the impact of immigration on the economy of the host country focusing on the experience of the united states the emphasis is on the period from the 1970s to the 1990s the author shows that research earlier in this period generally concluded that the economic effects of immigration were positive but that more recent research on later migrations have generally concluded that immigration may be having an adverse effect on the earnings of native unskilled workers and be placing an increased burden on welfare programs the importance of such economic analysis for the formulation of appropriate migration policies is stressed

communication complexity and mechanism design the curse of the revelation principle is that it leads us to focus on unrealistic mechanisms in which agents report all private information to the principal who then makes all decisions centrally this is not true when communication costs are introduced in that case partial communication of information sequential back and forth conversations and decentralization of decisions become part of optimal mechanisms this paper looks at the interplay between the incentive constraints and the communication constraints when can they be separated so that for example one can separately study the incentive compatibility of a social choice rule and the minimum cost communication protocol that realizes the social choice rule jel d82 c72

the organization of supplier networks effects of delegation and intermediation in a one principal two agent model with adverse selection and collusion among agents we show that delegating to one agent the right to subcontract with the other agent always earns lower profit for the principal compared with centralized contracting delegation to an intermediary is also not in the principal s interest if the agents supply substitutes it can be beneficial if the agents produce complements and the intermediary is well informed

dominant strategy implementation of bayesian incentive compatible allocation rules abstract a large literature on incentive mechanisms represents incentive constraints by the requirement that truthful reporting be a bayesian equilibrium this paper identifies mechanism design problems for which there is no loss in replacing bayesian incentive compatibility by the stronger requirement of dominant strategies we identify contexts where it is possible to change the transfer payments of an optimal bayesian mechanism so as to create dominant strategies and yet leave every participant s expected utility unchanged we also address the issue of multiple equilibria and unique implementation contexts where these results apply include auctions bilateral bargaining procurement contracting and intrafirm resource allocation

immigrant worker assimilation is it a labor market phenomenon the work in this paper contributes to the debate on the economic assimilation of immigrant workers in the u s labor market a model of simultaneous occupational choice and earnings is estimated for foreign born hispanic men foreign born east asian men and for native white men to test the general hypotheses of assimilation an important distinction is made between those who migrated as adults and those who migrated as children the results suggest that the appearance of assimilation may be the outcome of pre labor market experiences of individuals who migrate as children along with changes in u s immigration law that have relaxed skill criteria for entering immigrants

agri environmental schemes adverse selection information structure and delegation this work analyzes alternative designs of agri environmental schemes and how different incentive mechanisms impact on their overall efficiency it focuses on spatial targeting and delegation in an asymmetric information context first the optimal contract under adverse selection is modeled this model underlines the trade off between information rents and allocative efficiency the impact of spatial targeting is then addressed disaggregated information structures increase the optimal efforts asked of the farmers it may also involve higher information rents and may reduce the net contributions of some farmers finally the consequences of delegating authority within the principal agent relationship are investigated the results illustrate that spatial targeting and delegation when combined have asymmetric impacts on farmers payoffs

canadian immigration policy the effectiveness of the point system and other instruments this paper examines the effects of changes in canadian immigration policy on the occupational composition of immigration we focus on 1967 changes that created a regulatory system including the point system that still forms the framework of canadian immigration policy we find that the point system provides some control over occupational composition but that its effectiveness in fine tuning is limited by the large number of other characteristics it seeks to control we also find that entry class and source country composition of inflow have impacts that have swamped the effects of the point system in the last two decades summary in fre

undocumented mexico u s migration and the returns to households in rural mexico this paper presents estimates of net income gains to a sample of households in rural mexico from sending migrants illegally to the united states correcting for sample selectivity bias and it examines the role of expected income gains in driving illegal mexico u s migration there is no evidence that people who migrate illegally to the united states are above average contributors to household income either as workers in mexico or as mexico u s migrants however other things being equal villagers who are in the best position to contribute to household income as workers in mexico are positively selected not to migrate to the united states

delegation to encourage communication of problems we study a principal s choice to centralize or delegate decisions to an agent when delegation can be used to encourage the agent to communicate potential problems we find that the principal may choose centralization either to exercise better control over the agent s actions or to provide stronger incentives delegation emerges in equilibrium only if the costs of effort to acquire information for both the principal and the agent are sufficiently high we find that increases in the principal s penalties for an incorrect decision may increase the principal s expected payoff owing to optimal organizational responses in addition catastrophic risk the risk of incorrectly accepting a defective audit or product may be greater under centralization than under delegation furthermore catastrophic risk can be increased by well intentioned legislative efforts to decrease such risk by for example increasing the agent s penalties for failing to take a corrective action because the organizational structure may change