optimal contracting and the organization of knowledge we study contractual arrangements that support an efficient use of time in a knowledge intensive economy in which agents endogenously specialize in either production or consulting the resulting market for advice is plagued by informational problems since both the difficulty of the questions posed to consultants and the knowledge of those consultants are hard to assess we show that spot contracting is not efficient because lemons in this case self employed producers with intermediate knowledge cannot be appropriately excluded from the market however an ex ante firm like contractual arrangement uniquely delivers the first best this arrangement involves hierarchies in which consultants are full residual claimants of output and compensate producers via incentive contracts this simple characterization of the optimal ex ante arrangement suggests a rationale for the organization of firms and the structure of compensation in knowledge intensive sectors our findings correspond empirically to observed arrangements inside professional service firms and between venture capitalists and entrepreneurs

an empirical examination of quality certification in a lemons market i introduction researchers have long understood that a variety of mechanisms may be used to overcome problems of adverse selection stigler 1961 224 notes that s ome forms of economic organization may be explicable chiefly as devices for eliminating uncertainties in quality and akerlof 1970 cites independent groups such as the consumers union and united laboratories that test and certify the quality of goods there is however little empirical evidence that illustrates the effectiveness of such mechanisms in this article we examine the effect certification has on a market characterized by adverse selection using data from the market for young thoroughbreds we compare the performance of sales where auction houses provide certification services with sales where certification is absent the thoroughbred racehorse market consists of two distinct types of public auctions certified and noncertified sales in a certified sale auction houses physically inspect the horses nominated to their sales selling only the horses they conclude are from the upper end of the quality distribution in noncertified sales auction houses sell all horses nominated to a sale our empirical strategy is to perform tests that indicate whether adverse selection affects market outcomes in either certified or noncertified sales a finding that adverse selection is present in noncertified sales but absent in certified sales is consistent with the hypothesis that certification alleviates problems of adverse selection we adopt three approaches to test for the presence of adverse selection 1 the first approach is in the spirit of chiappori and salanie 2000 who examine the relationship between unobservable factors from participation and performance equations we model adverse selection as a case of sample selection bias and examine the correlation between errors in participation and price equations 2 to accomplish this we use a unique data set that allows us to estimate how breeder decisions to sell or retain horses affect market prices the data set consists of a 10 random sample of all thoroughbreds born in 1993 and includes both horses retained by their breeders who own a horse at the time of its birth and horses that breeders chose to sell our second test follows genesove 1993 and chezum and wimmer 1997 by examining the relationship between seller characteristics and price theoretically when observable seller characteristics are correlated with seller incentives to select goods adversely prices should reflect these differences chezum and wimmer observe that some breeders sell all of their horses whereas others retain a portion to race they find that market prices are inversely related to the extent of a breeder s involvement in racing concluding that adverse selection affects market outcomes we extend this work in two respects first we isolate the effect seller characteristics have on price through the decision to sell or retain a horse second we compare the effect seller characteristics have on observed prices in certified and noncertified sales our last test follows bond 1982 who attempts to identify adverse selection in the market for used trucks by comparing the repair records of trucks that were sold with the records of trucks retained by their original owners because the horses in our sample had not begun their racing careers at the time they were sold we use data on racetrack earnings as an ex post measure of quality and compare the quality of horses sold in noncertified sales with certified horses and horses retained by their breeders the results from each approach are consistent with certification alleviating problems of adverse selection we find that holding observable attributes constant horses that would receive unusually high market prices in noncertified sales are even more valuable in other options and are less likely to be sold in a noncertified sale

the market for lawyers and quality layers in legal services we study the functioning of the market for lawyers considering the strategic interaction among litigants lawyers and judges we investigate the value of legal representation and of systems of quality certification such as the queen s counsel system in our setting higher quality lawyers obtain better quality evidence and are better able to interpret it judges receive information from the lawyers and have reputational concerns we show that reputational concerns generate a decision bias in favor of certified lawyers and that this causes misallocation of lawyers at the market equilibrium as a result whereas a higher quality of lawyers increases welfare public information over quality may be welfare reducing

family firm performance over the business cycle a meta analysis the financial performance of family firms has been widely studied in the literature combining the results of 155 primary studies from 35 countries with data about business cycles we investigate how family firm performance changes over the business cycle using meta analytic estimation methods we find that family firms outperform nonfamily firms in developed markets irrespective of economic circumstances this outperformance although statistically significant is very small and practically negligible with regard to the business cycle we find evidence for a procyclical effect in which the relative performance of family firms is lower in economically difficult times our study extends the literature on how family firm performance depends on macroeconomic factors

matching problems with expertise in firms and markets when should expertise be shared in markets and when in firms knowledge exchanges in the market involve less information about the quality of the provider s expertise but facilitate good utilization of experts knowledge in a firm management holds soft information about individuals expertise and thus improves on the matching of experts to problems however the usage of experts is not smooth and thus firms experience over or underutilization of experts time thus the trade off between firms and markets is between utilization the market allows for better smoother utilization of knowledge than firms and the quality of matching between problems and problem solvers the market provides less information about experts quality

the impact of regulations on the supply and quality of care in child care markets we examine the impact of state child care regulations on the supply and quality of care in child care markets we exploit panel data on both individual establishments and local markets to control for state time and where possible establishment specific fixed effects to mitigate the potential bias due to policy endogeneity we find that the imposition of regulations reduces the number of center based child care establishments especially in lower income markets however such regulations increase the quality of services provided especially in higher income areas thus there are winners and losers from the regulation of child care services

declining job security this article defines and analyzes job security in the context of implicit contracts designed to overcome incentive problems in the employment relationship contracts of this nature generate predictions concerning the relationship between job security parameters such as worker seniority and sectoral economic conditions and the probability of separations to test these predictions i estimate binomial and multinomial models of job separations using panel study of income dynamics psid data for the years 1976 93 the results are consistent with a decline over time in the incentives to maintain existing employment relationships for male workers and for skilled white collar women

warning labels as cheap talk why regulators ban drugs abstract one explanation for drug bans is that regulators know more than consumers about product quality but why not just communicate the information in their ban perhaps via a would have banned label because product labeling is cheap talk any small market failure tempts regulators to lie about quality inducing consumers who suspect such lies to not believe everything they are told in fact when regulators expect market failures to result in under consumption of a drug and so would not ban it for informed consumers regulators ex ante prefer to commit to not banning this drug for uninformed consumers

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

are family firms good employers family firms employ about 60 percent of the global workforce while it is widely assumed that they are good employers data about their conduct is mixed in this study we extend stewardship and agency theories to test competing propositions about the impact of family on employment practices using data from 14 961 private belgian firms over a 19 year period higher investments lower dividend payout and higher risk tolerance indicate that family firms are better financial stewards of their companies than nonfamily firms however family firms are worse organizational stewards than nonfamily firms they offer lower compensation invest less in employee training and exhibit higher voluntary turnover and lower labor productivity further and contrary to earlier research we find that financial practices in private family firms do not change over time and that the deleterious influence of family on employment practices rises with both firm age and with heightened family involvement together our findings suggest that a more nuanced understanding of stewardship and agency theory is needed to understand the impact of family on the governance of private firms

working in family firms paid less but more secure evidence from french matched employer employee data the authors study compensation packages in family owned and nonfamily owned firms using french matched employer employee data they first show that family firms pay on average lower wages part of this wage gap is attributable to low wage workers sorting into family firms and high wage workers sorting into nonfamily firms however they also find evidence that company wage policies differ according to ownership status so that the same worker is paid differently under family and nonfamily firm ownership in addition family firms are characterized by lower job insecurity as measured by lower dismissal rates family firms also appear to rely less on dismissals and more on hiring reductions than do nonfamily firms when they downsize the authors show that compensating wage differentials account for a substantial part of the inverse relationship between the family nonfamily gaps in wages and job security

quality reputation and the choice of organizational form this paper revisits the hypothesis that nonprofit organizations emerge in markets that are characterized by contractual incompleteness because they ensure consumers against opportunistic behavior we extend the glaeser and shleifer glaeser e shleifer a 2001 not for profit entrepreneurs journal of public economics 81 99 115 framework which studies an entrepreneur s optimal choice of organizational form and service quality when quality is non contractible into a repeated interaction setting the main result is that when reputations can be sustained then for profit status is the preferred organizational form and high quality services are ensured this finding suggests that existing explanations of nonprofit organizations that focus entirely on contractual imperfections in the producer consumer relationship may be inadequate

the new closed shop the economic and structural effects of occupational licensure during the past few decades licensure a state enforced mechanism for regulating occupational entry quickly became the most prevalent form of occupational closure broad consensus among researchers holds that licensure creates wage premiums by establishing economic monopolies this article demonstrates that contrary to established wisdom licensure does not limit competition nor does it increase wages results are based on a new occupational dataset covering 30 years that exploits interstate variability in licensure across the 300 census identified occupations i argue that licensure instead of increasing wages creates a set of institutional mechanisms that enhance entry into the occupation particularly for historically disadvantaged groups while simultaneously stagnating quality

firms rents workers bargaining power and the union wage premium this article identifies the wage premium associated with firm level union recognition in france an average premium of 2 is found despite the fact that most workers are already covered by industry level agreements to explore the origin of the premium i construct a simple bargaining model from which i derive three predictions which are tested empirically using matched employer employee data the main prediction is that if intra firm bargaining is behind the union wage premium the latter increases with the amount of quasi rents available in the firms that unions organise this prediction is validated empirically when firms market shares are used as a proxy for their rents

owner managers and firm performance during the asian and global financial crises evidence from korea abstractwe examine the performance of the korean owner managers during the 1997 1998 asian financial crisis and the 2008 2009 global financial crisis to establish whether they overcome the unexpected exterior shocks better than employed managers we find that the owner managers record a significantly greater performance during the crises and especially during the latter period moreover our results suggest that such a tendency comes from the owner managers superior investment decisions our paper thus highlights the role of owner managers by studying their performance during the korean economic crisis periods jel g01 g32 g34

contraception and the demographic transition inspired by the historical english experience we modify the beckerian paradigm of fertility by incorporating costly societal influence on contraception heterogeneous generationally linked households choose between traditional and modern contraception the modern has a higher fixed but lower variable cost of averting childbirths initially the rich adopt the modern which unleashes society wide diffusion eventually everyone switches lowering fertility further and across households hastening the switch is falling child mortality quantitative experiments suggest contraception was a vital link between the historical mortality and fertility transitions though not the latter s proximate cause implications for more recent transitions are discussed

investment moral hazard and occupational licensing i analyse occupational licensing as an input regulation that requires minimum levels of human capital investment by professionals by raising professionals training levels licensing helps alleviate moral hazard problems associated with the provision of high quality services i also consider certification whereby consumers are provided information about professionals training levels i show that licensing and certification tend to benefit consumers who value quality highly at the expense of those who do not licensing may raise total surplus if sellers investments are not observable but is pareto worsening if training levels are observable certification may however lead to excessive investment as a signalling device and thus be pareto inferior to either licensing or to a policy of laissez faire

occupational licensing of a credence good the regulation of midwifery 1 introduction occupational licensing is as old as trade estimates are that in the united states alone at least 800 occupations require some form of license to practice rottenberg 1980 p 2 midwifery is most certainly among the oldest occupations known to homo sapiens and unsurprisingly it has been the subject of licensing regulations over the 20th century there has been however a marked reemergence of the practice over the past 20 years in the united states after nearly being driven from existence by physicians in the early part of the 20th century the percentage of midwife attended births has risen from 0 9 of all births in 1975 to 5 95 of all births in 1995 this latter figure translates into 231 921 midwife attended births for the year 1995 of this figure cnms attended 94 3 or 218 613 births a number of factors account for this resurgence including women s expression of their right to choose birth practitioners and place of birth increased political expression of that right and the escalating costs of traditional childbirth services by obstetricians obs and hospitals butter and kay 1988 in contrast midwife attended births account for a full 75 of all births in europe with far lower infant and maternal mortality rates reported coburn 1997 midwives are classified into two basic categories in this country lay midwife and certified nurse midwife cnm lay midwives typically receive no formal educational training but are clinically trained through apprenticeships on the other hand a cnm is a registered nurse with advanced training in midwifery who possesses evidence of certification by the american college of nurse midwives acnm adams 1989 p 1038 the practice of nurse midwifery as defined by the acnm is the independent management of care of essentially normal newborns and women antepartally before birth intrapartally during birth postpartally after birth and or gynecologically within a health care system which provides for medical consultation collaborative management and referral safriet 1992 p 425 the causes and effects of state regulation that determines the extent of professional independence from physicians of advanced practice nurses apns has been analyzed by dueker et al 2000 for the same general period we employ advanced practice nursing however includes nurse practitioners clinical nurse specialists and nurse anesthetists as well as cnms dueker et al 2000 suggest that for this larger category of nurse specialists apn earnings are lower and physicians assistants earnings are higher in states where apns have attained higher levels of professional independence measured in part by prescriptive authority 1 midwifery has been included along with other heath care professions in interesting studies of the impact of the composition of public licensing boards on particular occupational requirements graddy and nichol 1989 graddy 1991 but to the best of our knowledge midwifery has not been isolated in any study of effects of regulation s 2 the purpose of this paper is thus to analyze empirically the economic impact of alternative forms of regulation within the state markets for midwife services certified nurse midwives are formally recognized by the american college of obstetricians and gynecologists acog and are now able to practice legally in all 50 states including the district of columbia but cnms practice under significant and significantly different regulations that limit their scope of practice and constrain their use by women devries 1985 within the 50 states there are suggestions in the literature that the severity of regulations at the state level a partial product of past pressure by the medical establishment obs in particular has had deleterious effects in the market for midwives services however there has been again to the best of our knowledge no empirical support for such propositions or an analysis of the particular impact of alternative regulations

a picture of job insecurity facing british men this paper considers three aspects of the job insecurity facing british men in the last two decades the probability of becoming unemployed the costs of unemployment in terms of real wages losses and the probability that the continuously employed will experience substantial real wage losses the first of these has not risen in the last two decades the second has risen by around 50 percent and the third has risen particularly for the top skill groups

wage effects of unionization and occupational licensing coverage in the united states recent estimates in standard models of wage determination for both unionization and occupational licensing have shown wage effects that are similar across the two institutions these cross sectional estimates use specialized data sets with small sample sizes for the period 2006 to 2008 the authors analysis examines the impact of unions and licensing coverage on wage determination using new data collected on licensing statutes that are then linked to longitudinal data from the national longitudinal survey of youth nlsy79 from 1979 to 2010 they develop several approaches using both cross sectional and longitudinal analyses to measure the impact of these two labor market institutions on wage determination the estimates of the economic returns to union coverage are greater than those for licensing statutes

the self regulating profession slayton and treblicock 1978 the formal analysis of the economics of the self regulating profession has received little attention from theorists if a profession is self regulating in the sense that its current members being the sole suppliers of a certain type of service are free to determine in one way or another whether or not to admit a potential recruit then it might seem prima facie that such a profession could simply be regarded as a monopolistic seller of the service in question so that the effects of self regulation would appear to involve an unambiguous welfare loss the whole rationale for self regulation however rests on the notion that it provides a vehicle through which the quality of the service may be maintained in markets where the consumer cannot readily measure this quality himself it is the analysis of the interplay of these two elements the enhanced price of such services associated with the monopolistic power of the profession and the improved quality of the service which may accompany a reduction in supply which forms the focus of the present paper it is tempting to begin the analysis of such a profession by first positing some particular