learning and wage dynamics we develop a dynamic model of learning about worker ability in a competitive labor market the model produces three testable implications regarding wage dynamics 1 although the role of schooling in the labor market s inference process declines as performance observations accumulate the estimated effect of schooling on the level of wages is independent of labor market experience 2 timeinvariant variables correlated with ability but unobserved by employers such as certain test scores are increasingly correlated with wages as experience increases and 3 wage residuals are a martingale we present evidence from the nlsy that is broadly consistent with the model s predictions

reconciling the old and new census bureau education questions recommendations for researchers beginning with the 1990 census and the january 1992 current population survey cps the bureau of the census changed the emphasis of its educational attainment question from years of education to degree receipt using a matched sample from the 1991 and 1992 march cps this article addresses how to reconcile the old and new questions the effects of those methods on the estimated return s to education are then examined both the estimated linear return and the estimated college high school wage differential are slightly larger using information from the new question

the speed of employer learning the employer learning literature finds support for statistical discrimination on the basis of schooling how economically relevant statistical discrimination is depends on how fast employers learn about workers productive types this article is the first to estimate the speed of employer learning employers learn quickly initial expectation errors decline by 50 within 3 years this estimate places an upper bound on the contribution of signaling this bound varies with the speed of employer learning and with discount rate for a wide range of parameter values the contribution of signaling to the gains from schooling is less than 25

does employer learning vary by occupation models of employer learning have two implications first the distribution of wages becomes more dispersed as a cohort of workers gains experience second the coefficient on an ability correlate that employers initially do not observe grows with experience if learning by employers varies across occupations both of these indicators of learning should covary positively across groups defined by a worker s initial occupational assignment this paper tests these implications using data from the nlsy79 and cps i find that there is significant heterogeneity in the employer learning process across occupations and that occupational assignment affects the learning process independently of education

skill biased technological change and rising wage inequality some problems and puzzles the recent rise in wage inequality is usually attributed to skill biased technical change sbtc associated with new computer technologies we review the evidence for this hypothesis focusing on the implications of sbtc for overall wage inequality and for changes in wage differentials between groups a key problem for the sbtc hypothesis is that wage inequality stabilized in the 1990s despite continuing advances in computer technology sbtc also fails to explain the evolution of other dimensions of wage inequality including the gender and racial wage gaps and the age gradient in the return to education

comparative advantage learning and sectoral wage determination we develop a model in which a worker s skills determine the worker s current wage and sector the market and the worker are initially uncertain about some of the worker s skills endogenous wage changes and sector mobility occur as labor market participants learn about these unobserved skills we show how the model can be estimated using nonlinear instrumental variables techniques we apply our methodology to study wages and allocation of workers across occupations and industries using individual level panel data from the national longitudinal survey of youth we find that high wage sectors employ high skill workers and offer high returns to workers skills

the pricing and optimal strategies of callable warrants in this paper we introduce a valuation model of callable warrants under a setting of the optimal stopping problem between the holder investor and the issuer firm a warrant is the right to purchase new shares at a predetermined price when the new stocks are issued the value of the stock is diluted we consider the model taking the dilution into account after identifying optimal policies for the issuer and the investor we explore the analytical properties of the optimal exercise and call boundaries for the holder and the issuer respectively furthermore the value of such a callable warrant and the optimal critical prices are examined numerically using the binomial method

the analytic valuation of american options no analytic solutions exists for the valuation of american options written on futures contracts and foreign currencies for which early exercise may be optimal this article formulates the american option valuation problem in economically and mathematically meaningful ways this enables us to derive valuation formulas for american options the properties associated with the optimal exercise boundary are examined and a numerical technique to implement the valuation formulas is presented article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

imperfect information and dynamic conjectural variations this article analyzes oligopoly interaction in an environment where firms are imperfectly informed about the evolution of the market demand curve the analysis develops a two period cournot framework under the assumptions that demand shifts are positively serially correlated that firms never directly observe the demand curve and that firms never observe the previous quantity decisions of rivals firms do draw inferences about the position of the demand curve from past observations on prices consequently the current output of a firm will influence the current market price which will then influence rivals inferences about future demand the future output decisions of rivals will respond accordingly the theory predicts negative dynamic conjectural variations essentially a firm perceives that an increase in its output will lower the current market clearing price which will cause rival firms to think that the demand curve has shifted down and hence induce them to lower their outputs in the future

first mover disadvantages with private information we consider a leader follower game with output quantities as strategies so as to demonstrate the reduced advantages of the stackleberg leader in a stochastic environment with private information at the equilibrium the strategy of the leader reveals to the follower information about the demand in an attempt to signal low demand the leader contracts his output nevertheless unless the leader s information is infinitely noisy the follower can always correctly infer his signal we find a wide range of parameter values over which the follower is better off compared to the leader

asymmetric information and search frictions a neutrality result this paper integrates asymmetric information between firms into a canonical model of on the job search workers are heterogeneous in ability but not all employers observe a worker s type wage dispersion caused by search frictions makes the equilibrium wage distribution insensitive to informational asymmetries hence the equilibrium outcome may be the same as when a worker s ability is known to every firm the supportability of the full information outcome depends on market parameters related to productivity knowledge and search the theoretical results elucidate an empirical puzzle about demographic differences in asymmetric information between employers

acquisition and dissemination of information in imperfectly competitive markets i introduction does the market mechanism always generate incentives for the acquisition and dissemination of information about market conditions the efficiency of prices in aggregating and disseminating information has been extensively studied in competitive models of financial markets 1 an important result is the so called information paradox described by grossman and stiglitz 1980 according to which a revealing competitive equilibrium may fail to exist when the costs of acquiring information are small information problems are however as prevalent in product markets as they are in financial markets firms continually act to acquire information on market conditions such information is generally not solely of firm specific value but also of relevance to other firms hence there is a problem in how incentives for information acquisition among firms interact considering this problem naturally leads us to consider situations of imperfect competition rather than the competitive markets which might be more relevant for financial markets whether or not prices fully reflect the state of the market also has implications for macroeconomic models built on the presumption that prices do not fully adjust to all potentially available information recent attempts to explain why prices would not fully adjust to market conditions have focused on explicit costs either of acquiring information about market conditions see e g eden 1981 or adjusting prices see rotemberg 1986 we show here that information problems have significant effects on price adjustment due to the role prices play in disseminating information to illustrate the effects of strategic information transmission on the information content of prices we consider a static stackelberg model with two price setting firms producing a differentiated good this is the simplest conceivable setting where the price of one firm the leader may be used as an informative signal by another firm the follower and thus create a strategic problem of information dissemination to focus on the strategic interaction in the acquisition of information we disregard the explicit costs of adjusting prices once firms are assumed to possess market power it is possible that a firm will try to influence the information revealed by its actions and hence the information content of its prices in an attempt to distort the information being disseminated a firm may bias its price decision which may not only affect profits but also its decisions regarding information acquisition we consider here an information problem created by demand conditions which are subject to random shocks we endogenize the information structure by allowing both firms to acquire information on demand conditions prior to any price decisions information costs are fixed and possibly zero in so far as the leader s price decision is based on private information the follower may be able to infer information about demand for its good from the price chosen by the leader if the follower attempts to infer information from the price of the leader the leader has an incentive to mislead the follower by its choice of price 2 if the follower is rational it understands the leader s incentives and in the unique separating equilibrium is able to unravel the bias and correctly infer the information because the leader is rationally expected to bias its price relative to the price chosen if the firms shared the private information it cannot choose the unbiased price to avoid this bias the leader essentially has to be able to announce its information credibly at the same time as its price an action for which there is no obvious mechanism hence when information is private the leader has a biased price but the follower still infers the private information correctly considering pure strategy equilibria of the information acquisition game in the case of costless information we find that a pure strategy nash equilibrium need not exist although if one does exist only the leader acquires information

information sharing through sales report this paper studies information sharing through sales reports in cournot and bertrand duopolies with common demand uncertainty without sales reports firms choose quantities or prices strategically to manipulate the rivals perception about the market sales reports eliminate firms incentives to do so and keep them only maximizing the current profits if firms make independent sales report decisions no sales report is the unique subgame perfect equilibrium however in a cournot bertrand industry firms are better off with sales reports when goods are substitutes complements further sales reports decrease increase consumer surplus and social welfare in a cournot bertrand industry the results sharply contrast those from the previous information sharing models where firms exchange signals about the future demand copyright 1994 by blackwell publishing ltd

the signaling effect of emission taxes under international duopoly we analyze equilibrium emission taxes under international cournot duopoly in the presence of asymmetric information between firms when each firm does not know the production cost of its rival located in the other country the government of each country can use its emission tax as a signal of the competitiveness of its domestic firm we show that owing to this signaling effect the equilibrium emission tax and expected welfare of each country can be higher than those under symmetric information between firms or even higher than those obtained if the governments were to non strategically set the tax rate equal to the expected marginal damage from pollution i e the pigouvian tax level our results suggest that the presence of asymmetric information between firms can mitigate a race to the bottom in strategic environmental policymaking

employer learning statistical discrimination and occupational attainment statistical discrimination plays a prominent role in theoretical discussions of the return to education as well as race and gender differences building on some earlier work by henry farber and robert gibbons 1996 hereafter fg and others on employer learning in the labor market altonji and pierret 2001 hereafter ap provide a test for statistical discrimination in an environment in which firms are learning about characteristics of workers over time however that model assumes that the rate at which employers learn about a given worker is independent of the type of job that he or she is in consequently the ap framework cannot readily be used to study statistical discrimination in hiring or how statistical discrimination and employer learning influence the skill level of the initial occupation and progression over a career in this paper i extend the ap analysis in three key respects first as in robert gibbons et al 2004 the sensitivity of output to worker skill is assumed to depend on the skill level of the job second the rate at which employers learn about the worker s skill is assumed to depend on the skill level of the job finally the probability of being hired into a given job depends on expected productivity relative to the wage i show that statistical discrimination influences initial employment rates wage levels and job type and that employers initial estimate of productivity influences wage growth even in an environment in which access to training is not an issue the implication is that the market may be slow to learn that a worker is highly skilled if the worker s best early job opportunity given the information available to employers is a low skill level job that reveals little about the worker s talent i close with a brief discussion of directions for empirical work suggested by the analysis

a theory of wage and promotion dynamics inside firms we show that a framework that integrates job assignment human capital acquisition and learning captures several empirical findings concerning wage and promotion dynamics inside firms including the following first real wage decreases are not rare but demotions are second wage increases are serially correlated third promotions are associated with large wage increases fourth wage increases at promotion are small relative to the difference between average wages across levels of the job ladder fifth workers who receive large wage increases early in their stay at one level of the job ladder are promoted quickly to the next

testing for asymmetric employer learning recent evidence suggests that employers acquire more precise information about a worker s productivity the more time he or she spends in the labor market the following question arises is learning symmetric that is do all employers have the same information about workers productivity or is learning asymmetric that is does the current employer have superior information about workers productivity this article develops a learning model with endogenous mobility that nests both learning hypotheses it then proposes new tests for asymmetric employer learning overall learning appears to be mostly symmetric except possibly when the employees involved are college graduates

oligopolistic entry deterrence under incomplete information recent work has investigated the effects of asymmetric information between an incumbent firm and a potential entrant this study extends the analysis to allow the initial market structure to be a noncooperative oligopoly we show that there is a bayesian nash equilibrium in which the incumbent firms although unable to collude strategically deter entry that would have occurred under complete information in contrast to the past limit pricing literature it is a high price that deters entry as it signals to the potential entrant that this is a high cost industry extending the model to allow for multiple potential entrants we find that increasing the degree of potential competition raises the preentry price and reduces the likelihood of entry

a dynamic duopoly model with asymmetric information this paper investigates the impact of asymmetric information on the set of equilibria of a two period duopoly game with price competition it turns out that all admissible sequential equilibria of this game share a collusive character i e ex ante expected profits for a firm of any type are higher than in the complete information case for small uncertainties the results are asymmetric a small probability of a good type firm does not make much difference on the set of equilibrium payoffs but a small probability of a bad type firm does these results survive the introduction of kohlberg and martens 1986 stability concept copyright 1990 by blackwell publishing ltd

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

a dynamic programming approach to price installment options installment options are bermudan style options where the holder periodically decides whether to exercise or not and then to keep the option alive or not by paying the installment we develop a dynamic programming procedure to price installment options we study in particular the geometric brownian motion case and derive some theoretical properties of the io contract within this framework we also characterize the range of installments within which the installment option is not redundant with the european contract numerical experiments show the method yields monotonically converging prices and satisfactory trade offs between accuracy and computational time our approach is finally applied to installment warrants which are actively traded on the australian stock exchange numerical investigation shows the various capital dilution effects resulting from different installment warrant designs

enriching a theory of wage and promotion dynamics inside firms in previous work we showed that a model that integrates job assignment human capital acquisition and learning can explain several empirical findings concerning wage and promotion dynamics inside firms in this article we extend that model in two ways first we incorporate schooling and derive further testable implications that we then compare with the available empirical evidence second and more important we show that introducing task specific human capital allows us to produce cohort effects we further argue that task specific human capital is a realistic concept and may have many important implications we also discuss limitations of our extended approach

job matching and occupational choice this paper presents a model of job matching the generalizes the existing literature by allowing for different jobs types or occupations such differences affect the value of job specific experience inducing a career profile where certain types are sampled before others more specifically the analysis shows that it is optimal for the young and inexperienced to gravitate toward jobs exhibiting a certain kind of risk then after deriving the equilibrium job turnover rate for an economy in which people do not switch occupations panel data are used to estimate its underlying parameters the hypothesis that people do not switch occupations is rejected against the alternative that they do thus providing empirical support for the theoretical extension undertaken here