collusion under asymmetric information when applied to groups the revelation principle postulates a bayesian nash behavior between agents their binding agreements are unenforceable or the principal can prevent them at no cost we analyze instead a mechanism design problem in which the agents can communicate between themselves and collude under asymmetric information we characterize the set of implementable collusion proof contracts both when the principal offers anonymous and nonanonymous contracts after having isolated the nexi and the stakes of collusion we proceed to a normative analysis perform some comparative statics discuss our concept of collusion proofness and provide some insights about transaction costs in side contracting

uncertain infant mortality learning and life cycle fertility this article examines the links between infant mortality and fertility in an environment with unobserved heterogeneity in infant mortality risk across mothers in such an environment replacement behavior i e the fertility response to an experienced child death might be influenced by mothers learning about a family specific component of infant mortality risk i explicitly introduce learning by mothers in a dynamic stochastic model of life cycle marital fertility and i estimate the model s structural parameters using malaysian panel data the framework is used to estimate replacement rates and to correct for birth selectivity in the estimation of the relationship between infant mortality risk and health inputs

the effect of informal care on work and wages cross sectional evidence in the united states finds that informal caregivers have less attachment to the labor force the causal mechanism is unclear do children who work less become informal caregivers or are children who become caregivers working less using longitudinal data from the health and retirement study we identify the relationship between informal care and work in the united states both on the intensive and extensive margins and examine wage effects we control for time invariant individual heterogeneity rule out or control for endogeneity examine effects for men and women separately and analyze heterogeneous effects by task and intensity we find modest decreases 2 4 percentage points in the likelihood of working for male caregivers providing personal care female chore caregivers meanwhile are more likely to be retired for female care providers who remain working we find evidence that they decrease work by 3 10hours per week and face a 3 percent lower wage than non caregivers we find little effect of caregiving on working men s hours or wages these estimates suggest that the opportunity costs to informal care providers are important to consider when making policy recommendations about the design and funding of public long term care programs

endogenous groups and dynamic selection in mechanism design abstract we create a dynamic theory of endogenous risk sharing groups with good internal information and their coexistence with relative performance individualistic regimes which are informationally more opaque inequality and organizational form are determined simultaneously numerical techniques and succinct reformulations of mechanism design problems with suitable choice of promised utilities allow the computation of a stochastic steady state and its transitions regions of low inequality and moderate to high wealth utility promises produce the relative performance regime while regions of high inequality and low wealth produce the risk sharing group regime if there is a cost to prevent coalitions risk sharing groups emerge at high wealth levels also transitions from the relative performance regime to the group regime tend to occur when rewards to observed outputs exacerbate inequality while transitions from the group regime to the relative performance regime tend to come with a decrease in utility promises some regions of inequality and wealth deliver long term persistence of organization form and inequality while other regions deliver high levels of volatility

toehold acquisitions shareholder wealth and the market for corporate control this study examines the valuation consequences of control related outcomes that fol low toehold acquisitions we find evidence that toehold acquisitions facilitate valueenhancing control transfers the types of control transfers not only include takeovers but also internal mechanisms such as proxy fights and management turnovers we find that toehold targets experiencing such control transfers exhibit an abnormal increase in share value while those not experiencing such control transfers exhibit an abnormal de crease in share value the results suggest that the positive valuation effect associated with toehold acquisitions reflects the expected benefits of subsequent control transfers

role of linking mechanisms in multitask agency with hidden information we investigate the adverse selection problem where a principal delegates multiple tasks to an agent we characterize the virtually implementable social choice functions by using the linking mechanism proposed by jackson and sonnenschein 2007 that restricts the message spaces the principal does not require any incentive wage schemes and can therefore avoid any information rent and welfare loss we show the resemblance between the functioning of this message space restriction and that of incentive wage schemes we also extend the results of the single agent model to the multi agent model

an estimate of a sectoral model of labor mobility this paper develops a model of sectoral labor mobility and tests its main implications the model nests two distinct hypotheses on the origin of mobility a sectoral shocks and b worker employer mismatch we estimate the relative importance of each hypothesis and find that the bulk of labor mobility is caused by mismatch rather than by sectoral shift we then try to put a value on society s match specific information that is we ask to what extent the availability of the option to change jobs raises gnp we find that the mobility option raises expected earnings by roughly between 8 5 percent and 13 percent of labor earnings which translates to an increase in gnp of between 6 percent and 9 percent

ceo talent ceo compensation and product market competition abstract we develop a structural industry equilibrium model to show how competitive chief executive officer ceo firm matching and product markets jointly determine firm value and ceo pay we analytically derive testable implications for the effects of product market characteristics on firm size ceo pay and ceo impact on firm value ceo talent matters more in more competitive markets with greater product substitutabilities our ceo impact estimates are much higher than those obtained by previous structural approaches that abstract away from ceo market segmentation the estimates differ across industries primarily due to variation in product market competition rather than variation in the ceo talent distribution

diversification and cash dynamics abstract why do diversified firms hold significantly less cash than focused firms we study this question using a dynamic model of corporate investment saving and diversification decisions we find that investment dynamics are more important in explaining the cash differences than financing frictions more efficient internal capital markets increase cash differences and are especially valuable when a firm diversifies or refocuses contrary to static models more diverse conglomerates have lower cash differences endogenous selection diversifying firms are larger and have better growth opportunities accounts for 68 of the cash difference and the diversification event itself reduces cash holdings by 32

the supply of children s time to disabled elderly parents i introduction in recent years economists have become increasingly interested in intergenerational transfers of both time and money 1 such transfers may be motivated by altruism or exchange models of altruism assume that a person s utility depends on the consumption or utility of other family members and her own consumption for example children may supply unpaid informal care to aging parents because their utility increases when their parents are happier one of the most striking predictions of models of altruism is that public subsidies tend to crowd out transfers by altruistic individuals especially if the subsidy is financed by taxing the altruistic individual becker 1974 in exchange models there is typically altruism but one family member such as a parent can induce a relative such as a child or kid 2 to provide more services or money than the relative would normally provide by threatening to withhold a bequest to the extent that this is so one would plausibly expect more care and attention to be provided to wealthy parents when there is more than one kid more care should be provided because the threat of disinheritance is more credible when there is competition between kids for bequests in a well known article bernheim shleifer and summers 1985 hereafter referred to as bss found empirical support for the strategic bequest motive based on an observed positive relationship between children s visits and telephone calls to elderly parents per child as the measure of attention and bequeathable wealth per child as the measure of the financial motivation for providing such attention one might expect this result to extend to decisions about direct provision of help informal care that kids may provide to parents the marginal benefit of such care is plausibly greater than the benefit derived from a visit or telephone call in a recent article however we found no evidence that the strategic bequest motive is an important determinant of the amount of informal care kids provide or a related decision whether or not to place the parent in a nursing home sloan hoerger and picone 1996 we focused on the distinction between cognitively aware parents who can threaten to disinherit their kids and cognitively unaware parents who cannot disinherit and examined whether this distinction had any effect on the probability that the parent entered a nursing home or on amounts of formal and informal care received if the parent remained in the community any strategic effects were swamped by the greater marginal benefit of care to the parent when the parent was cognitively unaware moreover among the cognitively aware richer parents actually received less informal care contrary to the strategic model s predictions unfortunately in past research on intergenerational transfers of time and money it was not possible to control for the wealth wage and other characteristics of kids to the extent that kid s wealth and wage were positively correlated with parent s wealth which was observed the parameter estimates on parent s wealth may be negatively biased although parent s wealth and kid s wealth and wage rates are plausibly positively correlated they have opposite effects on the supply of kid s time according to the strategic bequest model that is potential bequests from a parent may be less attractive to rich kids and therefore induce less care we test the strategic bequest model using information on elderly parents and their children from two linked surveys the 1989 national long term care survey nltcs for elderly individuals and the survey of informal caregivers sic for a subsample of the elderly s children using these data we can include explicit measures of kid s wealth and wage rates thereby avoiding the possible bias introduced by a correlation between parent s and kid s wealth and wages also the data sets provide information on several pertinent health cognitive and functional status variables which are not typically observed in surveys of financial status

reducing incremental costs associated with the delegation of incentive contracting decisions an analysis of planning and control decisions in a manufacturing setting in the presence of moral hazard abstract we compare and contrast two specific regimes involving the centralization and delegation of the incentive contracting decision in manufacturing organizations in the centralization regime a single individual simultaneously makes the allocation of demand to production facilities and determines the incentive compensation scheme for the managers at the facilities under the delegation regime the demand allocation is decided upon initially by a superior and the incentive contracting decision is subsequently made by a subordinate who is neither of the two managers in charge of the production facilities using the principal agent paradigm which assumes that the managerial efforts are unobservable we demonstrate that the centralization regime performs no worse than the delegation regime for situations where strategic or other requirements necessitate firms to opt for the delegation of the incentive contracting decision we propose a heuristic that significantly increases the likelihood of mimicking the allocation and contracting decisions made under the centralized regime

job search with belated information and wage signalling a comment abstract berninghaus 1986 investigated the optimal policy in a job search problem with belated information where jobs contain nonpecuniary components that can be observed only after the job has been tested for one period berninghaus uses techniques of dynamic programming specifically the gittens index to derive conditions under which a reservation wage policy is optimal for this problem we demonstrate that the gittens index has a simple economic interpretation when the pecuniary and nonpecuniary returns are jointly normally distributed the reservation wage policy is optimal in this case if the returns are either positively correlated or weakly negatively correlated

empirical analysis of occupational hierarchies using data on u s engineers and the position of engineering jobs within firms this paper estimates a model of hierarchies within firms the model extends rosen s 1982 model of recursive production to two skills and multiple hierarchy levels the model generates an empirical model that is nested within a general roy 1951 model of self selection maximum likelihood estimates of the parameters of the production technology and the skill experience profiles are estimated the results suggest that approximately two thirds of changes in employment shares across hierarchy levels across time are explained by demographic shifts in the stock of engineering skills most of the returns to experience and to assignment to higher hierarchy levels within firms are caused by skill accumulation and self selection rather than technological dierences across hierarchy levels

national vs european incentive policies bargaining information and coordination abstract we build a hierarchical model of contractual relationships under moral hazard to address issues about subsidiarity i e optimal de centralization of incentive industrial policies at the national level or at the european community level incentive policy is viewed as an incentive contract for producers who take unobservable decisions that have spillover effects across member states a community agency designs contracts for producers and contractual compensatory transfers between states on the basis of its observations then national regulators and their home producers negotiate according to a generalized nash bargaining a national contract that complements the community contracts given that national regulators will have access to more observations on the producers activities in this setting we show that full centralization is never optimal we give sufficient conditions for complete decentralization to be optimal and when both policies are present we characterize how they interact to provide incentives to producers

income and outcomes a structural model of intrahousehold allocation there is evidence from several sources that one cannot treat many person households as a single decision maker if this is the case then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household we develop a method of identifying how incomes affect outcomes given conventional family expenditure data the basic assumption we make is that household decision processes lead to efficient outcomes we apply our method to a sample of canadian couples with no children we find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth

the empirical content of the roy model this paper clarifies and extends the classical roy model of self selection and earnings inequality the original roy model based on the assumption that log skills are normally distributed is shown to imply that pursuit of comparative advantage in a free market reduces earnings inequality compared to the earnings distribution that would result if workers were randomly assigned to sectors aggregate log earnings are right skewed even if one sectoral distribution is left skewed most major implications of the log normal roy model survive if differences in skills are log concave however few implications of the model survive if skills are generated from more general distributions we consider the identifiability of the roy model from data on earnings distributions the normal theory version is identifiable without regressors or exclusion restrictions sectoral distributions can be identified knowing only the aggregate earnings distribution for general skill distributions the model is not identified and has no empirical content with sufficient price variation the model can be identified from multimarket data cross sectional variation in regressors can substitute for price variation in restoring empirical content to the roy model

collusion and discrimination in organizations abstract in a principal multi agent setting we investigate how optimal contracts should be modified under relative performance evaluation when agents collude agents may write side contracts which are not contingent on their effort choices but indirectly control them through side transfers we show that the optimal collusion proof contract is to introduce a discriminatory policy in the sense that the wage schemes offered to agents depend on their identities even if they are identical with respect to productive abilities such discriminatory wage schemes explain the organizational strategy of divide and conquer as an optimal response to collusion

interim news and the role of proxy voting advice this paper examines the information content and consequences of third party voting advice that arrives as news at an interim stage in corporate proxy contests we first document significant stock returns around announcements of proxy vote recommendations we then develop a multiequation empirical procedure for disentangling the price impact of prediction effects changes in contest outcome probabilities from the price impact of certification effects changes in outcome contingent valuations both effects are present in the data voting advice is both predictive about contest outcomes and informative about the ability of dissidents to add value consequently proxy advice plays a dual informational role

ceo wage dynamics estimates from a learning model abstract the level of chief executive officer ceo pay responds asymmetrically to good and bad news about the ceo s ability the average ceo captures approximately half of the surpluses from good news implying ceos and shareholders have roughly equal bargaining power in contrast the average ceo bears none of the negative surplus from bad news implying ceos have downward rigid pay these estimates are consistent with the optimal contracting benchmark of harris and holmstrom 1982 and do not appear to be driven by weak governance risk averse ceos accept significantly lower compensation in return for the insurance provided by downward rigid pay

limited intertemporal commitment and job design abstract the paper shows that some of the guidelines for job design that emerge from a static analysis of the multitask agency problem can be overturned in a dynamic model with limited commitment static analyses have shown that it is optimal to assign workers sole responsibility for tasks and to allocate them tasks which are as homogeneous as possible with respect to the ease of measuring performance our dynamic analysis demonstrates that it can instead be optimal to make workers jointly responsible for tasks and to make their task portfolios as similar to one another but as internally diverse as possible

the strategic bequest motive although recent research suggests that intergenerational transfers play an important role in aggregate capital accumulation our understanding of bequest motives remains incomplete we develop a simple model of strategic bequests in which a testator influences the decisions of his beneficiaries by holding wealth in bequeathable forms and by conditioning the division of bequests on the beneficiaries actions the model generates falsifiable empirical predictions that are inconsistent with other theories of intergenerational transfers we present econometric and other evidence that strongly suggests that bequests are often used as compensation for services rendered by beneficiaries

corporate financial policy and corporate control abstract this paper presents evidence that stockholder wealth declines on average when managers respond to attempted hostile takeovers with defensive changes in asset and ownership structure the data also indicate that these corporate restructurings are typically quite large and that many are attempts by managers to create barriers specific to the hostile bidder and or to consolidate a block of voting securities in the hands of management allies the evidence suggests that defensive motives whether beneficial or harmful influence corporate asset and ownership structure

collective organizations versus relative performance contracts inequality risk sharing and moral hazard abstract this paper studies collective economic organizations that share risk and mitigate moral hazard and compares them with relative performance contracts information constrained optimal distributions of organizations and contracts are shown to be functions of the underlying primitives in particular the distribution of pareto weights and hence degree of inequality internal inequality of a potential local group is a force for collective organization that is multi agent organizations exist in order to extract wealth from some but not necessarily all members the group organization is also shown to be information constrained pareto optimal at extremes of local wealth relative to an outsider but the group organization is susceptible to both agents simultaneously deviating colluding against the outsider and this distortion makes an individualistic relative performance contract an attractive alternative more generally organizations contracts and allocations are jointly determined these implications could be distinguished in cross sectional time series data journal of economic literature classification numbers d70 d82

immigration search and loss of skill this article develops and estimates an on the job search model of the entry of highly skilled immigrants from the former soviet union into the israeli labor market the estimated parameters of the model together with information on the wages of immigrants from earlier waves imply that on average immigrants can expect lifetime earnings to fall short of the lifetime earnings of comparable natives by 57 of this figure 14 percentage points reflect frictions associated with nonemployment and job distribution mismatch and 43 percentage points reflect the gradual adaptation of imported schooling and experience to the local labor market

the impact of student debt on education career and marriage choices of female lawyers abstract we develop and estimate a dynamic model to study the impact of student debt on education career and marriage market choices of young female lawyers our model accounts for several important institutional features of the labor market for lawyers including differences in the work hours across occupational tracks and learning about the prospects of promotion to partner some female students need to take on large amounts of student debt to finance their education and hence start their careers with large amounts of negative wealth the empirical findings suggest that student debt has negative effects on marriage prospects career prospects and investments in educational quality of female lawyers the analysis also provides new insights into the design of public policies that aim to increase public sector employment we show that it is possible to design conditional wage or debt service subsidy programs that significantly increase public sector career choices at reasonable costs

accounting information and corporate governance market and analyst reactions to earnings of firms engaged in proxy contests abstract this paper studies market and analyst reactions to earnings i during a proxy contest for board seats and ii after a proxy contest induced management change despite indications of earnings management during the proxy contest market and analyst reactions are more pronounced than in prior periods and earnings surprises explain more of the cross sectional variation in these reactions market and analyst reactions to earnings released after a successful proxy contest are less pronounced than in prior periods and earnings surprises explain less of the variation in these reactions perhaps due to new managements tendency to take an earnings bath

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

dynamic contract and discretionary termination policy under loss aversion abstract we explore how the timings of compensation payments and contract terminations are jointly determined in a continuous time principal agent model under the discretionary termination policy of investors the principal when the manager agent has loss averse preferences our theoretical findings provide several new empirical implications for backloaded compensation and forced managerial turnover our model also shows that mandatory deferral regulation governing incentive pay induces investors to terminate the contract relation earlier and results in the more frequent replacement of managers

dynamic wage and employment effects of elder parent care this article formulates and estimates a dynamic discrete choice model of elder parent care and work to analyze how caregiving affects a woman s current and future labor force participation and wages the model incorporates parental health changes human capital accumulation and job offer availability the estimates indicate that women face low probabilities of returning to work or increasing work hours after a caregiving spell i use the estimated model to simulate the caregiving employment and welfare effects of a longer unpaid work leave than currently available under the family and medical leave act a paid leave and a caregiver allowance

decentralization and collusion abstract we consider a model where agents work in sequence on a project share information not available to the principal and can collude due to limited liability the coase theorem does not apply the distribution of surplus among the agents is therefore an important control variable for the principal which gives us a theory of how to delegate in an organization subject to moral hazard the optimal distribution of surplus can always be achieved by delegating in the right way decentralization without using message games journal of economic literature classification numbers d23 d82 l14 l22

contracting with self esteem concerns it is widely accepted in social psychology that the need to maintain and enhance self esteem is a fundamental human motive we incorporate this factor into an otherwise ordinary principal agent framework and examine its impact on the optimal incentive scheme and the agent s behavior especially focusing on the form of intrapersonal strategy known as self handicapping incorporating self esteem concerns into a contracting situation yields an implication that runs counter to conventional wisdom that is the standard tradeoff between risk and incentives may break down i e more uncertainty reduces agency cost and hence results in stronger incentives in the presence of self esteem concerns this is because uncertainty mitigates the need for self handicapping this result provides a possible reason for why we do not empirically observe this tradeoff in a robust manner we present an intuitive condition for this anomaly to arise and provide a set of testable implications the present framework also reveals why and how team production can be made more profitable by providing an explanation for the increasing popularity of team production finally this simple logic is applied to identify additional implications for the hidden costs of external enforcers such as evaluation and monitoring which are discussed extensively in social psychology

a note on the optimal structure of production abstract we analyze the advantages of centralization and decentralization in industries in which production takes place in several stages and the costs are privately observed by the agents in charge of production we demonstrate that informational diseconomies arise when uncorrelated information is concentrated in the hands of a single agent these diseconomies arise when the stages of production are different activities with different cost supports journal of economic literature classification numbers d82 l22 l51

proxy voting and the sec abstract this paper analyzes the sec s proxy regulations and assesses their effects on corporate governance the proxy rules began in 1935 as a minimal series of disclosure requirements and a prohibition against fraud by 1956 they imposed extensive and wide ranging disclosure requirements on anyone wishing to communicate about voting issues and required that all such communications be cleared in advance in essence censored by the sec i present evidence that since that time the rules have significantly increased the costs of communication and coordinated action among shareholders they have thus deterred shareholder initiatives and inhibited the development of a private market for information about voting issues

why are ceos rarely fired evidence from structural estimation i evaluate the forced ceo turnover rate and quantify effects on shareholder value by estimating a dynamic model the model features learning about ceo ability and costly turnover to fit the observed forced turnover rate the model needs the average board of directors to behave as if replacing the ceo costs shareholders at least 200 million this cost mainly reflects ceo entrenchment rather than a real cost to shareholders the model predicts that shareholder value would rise 3 if we eliminated this perceived turnover cost all else equal the model also helps explain the relation between ceo firings tenure and profitability

executive compensation a modern primer this article studies traditional and modern theories of executive compensation bringing them together under a simple unifying framework accessible to the general interest reader we analyze assignment models of the level of pay and static and dynamic moral hazard models of incentives and compare their predictions to empirical findings we make two broad points first traditional theories find it difficult to explain the data suggesting that compensation results from rent extraction by ceos however more modern shareholder value theories that arguably better capture the ceo setting do deliver predictions consistent with observed practices suggesting that these practices need not be inefficient second seemingly innocuous features of the modeling setup often made for tractability or convenience can lead to significant differences in the model s implications and conclusions on the efficiency of observed practices we close by highlighting apparent inefficiencies in executive compensation and additional directions for future research

relative efficiencies and comparative advantages in job search a model of employed and unemployed job search is estimated from a panel of new entrants into the labor force as well as prime age workers after investigating the relative efficiency of the two mai

the value of children inter generational support fertility and human capital abstract this paper offers robust empirical evidence of a darwinian pro natalist mechanism parents can improve their old age support with an additional child using the incidence of first born twins as an instrument for fertility outcomes i find that chinese senior parents with more children receive more financial transfers and are more likely to co reside with an adult child they are also less likely to work past retirement age the estimated effects are large despite the evidence that adult children from larger families are less educated and earn significantly less interestingly the effect of an increase in the number of children on old age support does not depend on the child s gender

information extraction and norms of mutual protection abstract we study a class of moral hazard economies in which a principal interacts with several agents in these economies first best allocations can be implemented via full information extraction when side trades between agents can be restricted when instead side trades cannot be restricted the ability of the principal to extract information from the agents is severely hampered in this context side trades take the form of informal contracts which can be directly interpreted as norms of mutual protection which are indeed quite common among extended family members as well as inside various social political and religious groups

the value of precontract information about an agent s ability in the presence of moral hazard and adverse selection we analyze the expected value of information about an agent s type in the presence of moral hazard and adverse selection information about the agent s type enables the principal to sort screen agents of different types the value of the information decreases in the variability of output and the agent s risk aversion two factors that are typically associated with the severity of the moral hazard problem however the value of the information about agent type first increases but ultimately decreases in the severity of adverse selection the decrease comes about because the means available to the principal to induce effort namely the pay performance sensitivity must also be used to sort screen agents and these two goals conflict this decline in value occurs despite the monotonically increasing importance of the information in determining the principal s expected profits further we show that the peak value of information occurs at a predictable level of adverse selection these results imply that over some range the importance of the information will be increasing and the value of the information will be simultaneously decreasing in the severity of adverse selection

learning about new products an empirical study of physicians behavior i introduction an important aspect of economic innovation is the development of new products thus firms often devote large amounts of resources to research and development the pharmaceutical industry in particular is characterized by a high degree of product innovation and significant investments in research and development 1 critical to the adoption of a new pharmaceutical however is the willingness of physicians to prescribe it although clinical trials and advertising convey information about the quality of a new pharmaceutical considerable uncertainty remains not only about its general quality but also about its effect on individual patients 2 because physicians ultimately resolve this uncertainty by prescribing the new drug 3 to their patients namely by experimentation the adoption of a new pharmaceutical is closely related to the experimentation process by which physicians gain information in this paper we focus on the entry of a new antiulcer drug omeprazole in the italian pharmaceutical market in june of 1990 4 our data consist of monthly prescriptions of antiulcer medications by physicians in the rome metropolitan area between june 1990 and december 1992 we develop and estimate a dynamic discrete choice model of physician bayesian learning about the quality of a new drug in our model physicians have initial beliefs about the new drug s efficacy and update them every time that they prescribe the new drug and observe the treatment outcome when choosing which drug to prescribe to a particular patient a forward looking physician considers not only the expected outcome for that patient but also the opportunity to learn about the new drug s quality and use the information on future patients our parameter estimates allow us to disentangle how uncertainty about the new drug s quality intertemporal preferences and prices affect the adoption of the new drug and the corresponding health outcomes a recent literature has explored the role of learning about pharmaceuticals 5 as noted by manchanda et al 2005 in their review of this literature some important aspects of the learning mechanism are the channels through which agents learn prescription detailing marketing meetings and events their preferences toward risk risk averse or risk neutral and whether they are short sighted myopic or forward looking myopic agents maximize their current expected utility while forward looking agents evaluate their current utility as well as the expected future value of the information they might gain through the current prescription 6 the studies also differ in whether they use physician level or aggregate data a central contribution of our paper is the prediction of market demand for the new drug through a parsimonious yet behaviorally rich model using the same physician level data used here coscelli and shum 2004 model the behavior of doctors who learn in a bayesian fashion yet are myopic we in contrast model the forward looking behavior of physicians and reject the null hypothesis that physicians are myopic according to our estimates myopic behavior significantly delays the adoption of the new drug and generates large losses to patients health crawford and shum 2005 use related patient level data and model how forward looking patients learn about their curative and symptomatic matches with respect to alternative medications in their model a patient s learning about a medication is not driven by the fact that the medication is new rather it is driven by her need to learn which medication suits her best hence she learns about her match to each medication not just the new one in our model however learning is driven by the market level uncertainty associated with omeprazole as a new product 7 while it would be of interest to study both doctors and patients learning our doctor level data motivate our focus on physician learning

proxy contests and the governance of publicly held corporations abstract analysis of 60 proxy contests for seats on the boards of exchange listed firms during 1978 1985 shows that three years after the contest less than one fifth of the sample firms remain independent publicly held corporations run by the same management team proxy contests are typically followed by managerial resignations even when dissidents fail to obtain a majority of board seats and are often followed by sale or liquidation of the firm the average stockholder wealth gains associated with proxy contests are largely attributable to gains by companies in which dissident activity leads to sale or liquidation

to build or not to build normative and positive theories of public private partnerships abstract this paper analyzes whether the two tasks of building infrastructures which are socially useful in providing public services and managing these assets should be bundled or not when performance contracts can be written both tasks should be performed altogether by the same firm if a better design of the infrastructure helps also to save on operating costs otherwise tasks should be kept apart and undertaken by different units in incomplete contracting environments we isolate conditions under which either the traditional form of public provision of services or the more fashionable public private partnership emerges optimally the latter dominates when there is a positive externality and the private benefits from owning assets are small enough finally we take a political economy perspective and study how incentive schemes are modified under the threat of capture of the decision makers much of the gains from bundling may be lost in this case

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

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

the match between ceo and firm we investigate the role of job match heterogeneity in the ceo labor market we document a high percentage of ceo turnovers in the early years of tenure as illustrated by the hazard that increases until the fifth year of ceo tenure and then decreases evidence suggests that a good match is more likely if the new ceo performs better than the previous ceo the best matches tend to occur when inside outside ceos follow previous ceos who quit are dismissed evidence consistent with match theory in the ceo labor market suggests factors that influence the likelihood of observing a good match

correlation and relative performance evaluation this paper reexamines the issue of relative versus joint incentive schemes in a multi agent moral hazard framework the model allows a full analysis of the information and dependence structure an important result is that the widespread notion that greater correlation in outcomes calls for more competition is not robust first when the dependence structure is effort sensitive the optimal incentive scheme in general mixes elements of relative evaluation and joint evaluation second under limited liability higher equilibrium correlation tends to make joint performance evaluation more desirable examples are provided regarding incentives in firms finance and innovation

cooperation and competition in organizations a dynamic perspective abstract in static principal agent relationships cooperation and competition among agents both yield higher welfare than independent compensation both modes of job design improve the tradeoff between risk and explicit incentives in dynamic settings welfare is also affected by implicit incentives in particular the ratchet effect i characterize the effects of job design decisions on implicit incentives showing that they differ in nature from explicit incentive effects and may be the dominant ones even if a decision about job design improves the static risk incentive tradeoff it may worsen the ratchet effect by so much that welfare falls

collusion and biased tournaments abstract tournaments are vulnerable to collusion this paper finds that biased tournaments can be more effective at preventing collusion than unbiased ones when agents can collude to exert low effort introducing some bias into tournaments generates opposite effects on favored and disfavored agents respective incentives to exert high effort and provides strong incentives for the favored agent to deviate from collusion introducing an adequate degree of bias reduces the principal s incentive cost for preventing collusion however granting excessive bias instead increases the incentive cost we show that the optimal level of bias can be endogenously determined

coalitions incentives and risk sharing abstract this paper analyzes the effects of coalitional behavior in principal multiagent relationships with moral hazard and identifies cases where the principal prefers agents to form a coalition via side contracting it is shown that the principal can implement given efforts via non individualistic incentive contracts at a lower cost when the agents can monitor each other s efforts perfectly and hence coordinate their effort choice than when the agents behave independently permitting the principal to utilize more complex communication mechanisms does not alter the result for there is no coalition proof revelation mechanism improving the principal s welfare journal of economic literature classification number d82

career concerns monetary incentives and job design we study optimal incentive contracts when commitments are limited and agents have multiple tasks and career concerns the agent s career concerns are determined by the outside market we show that the principal might want to give the strongest explicit incentives to agents far from retirement to account for the fact that career concerns might induce behavior in conflict with the principal s preferences furthermore we show that maximized welfare might be decreasing in the strength of career concerns that optimal incentives can be positively correlated with various measures of uncertainty and that career incentives have strong implications for optimal job design

tariff choice with consumer learning and switching costs abstract consumers choosing flat rate contracts tend to have insufficient usage to warrant the cost particularly for new products we propose and estimate a bayesian learning model of tariff and usage choice that explains this flat rate bias without relying on behavioral misjudgments or tariff specific preferences for new products consumers are uncertain about both their utility relative to the population mean and the mean itself we show that this latter uncertainty inflates prior variances which leads consumers to weight their private signals more heavily when updating beliefs posteriors are unbiased across products for a given product however the unknown mean yields a winner s curse consumers with high posteriors tend to overestimate their utility these consumers choose fixed rate tariffs and lower their usage as they correct their beliefs the flat rate bias arises when switching costs deter them from changing tariffs using the estimated model the authors find that tariff menus are ineff

risk allocation and the costs and benefits of public private partnerships we study the agency costs of delegated public service provision focusing on the link between organizational forms and uncertainty at project implementation we consider a dynamic multitask moral hazard environment where the mapping between efiort and performance is ex ante uncertain but new information may come along during operations our analysis points out at the e ciency gains that bundling planning and implementation as under public private partnerships can bring in terms of better project design and lower operational costs bundling also results in increasingly better performance as uncertainty is reduced by growing experience in the sector bundling should instead be viewed with caution when the private sector seeks to radically innovate on public service provision or to introduce new services but lacks the knowledge and expertise to anticipate the impact of the innovative design procedure technology on the cost of operations the compounding of asymmetric information ex post plus moral hazard and renegotiation may generate diseconomies of scope in agency costs which for high operational risk can make unbundling optimal in this context the use of private flnance can help re establishing the beneflt of bundling only if lenders have su cient expertise to help assessing project risks

a dynamic model of occupational choice abstract a dynamic model of occupational choice is developed where within an occupation the match at the current job may help forecast matches at future jobs an index policy is shown to be optimal each occupation is assigned an index and the occupation with the highest index is sampled when training costs are low and layoff risks are nonnegligible occupations in which job matching information is relatively occupation specific receive higher indices however this result is reversed when training costs are sufficiently high

collusion and renegotiation in a principal supervisor agent relationship this paper describes a principal agent relationship with a supervisor who has information about the agent the agent and the supervisor have the possibility to collude and misinform the principal from the literature we know that there exists an optimal contract which excludes collusion in equilibrium the optimal contract however is ex post inefficient and creates scope for renegotiation if renegotiation is allowed then under some parameter constellations the optimal contract is a contract which necessarily induces collusion the paper thus shows that the principal s behavior toward ex post inefficiencies may determine whether collusion occurs in equilibrium

job matching and on the job training conventional analysis predicts that workers pay part of their on the job training costs by accepting a lower starting wage and subsequently realize a return to this investment in the form of greater wage growth missing from the conventional treatment of on the job training is a discussion of the process by which heterogeneous workers are matched to jobs requiring varying amounts of training this matching process constitutes a key feature of the on the job training model presented in this article and tested with a unique data set containing extensive information concerning on the job training employer search wages and wage and productivity growth

why do some households trade so much when agents can learn about their abilities as active investors they rationally trade to learn even if they expect to lose from active investing the model used to develop this insight draws conclusions that are consistent with empirical study of household trading behavior households portfolios underperform passive investments their trading intensity depends on past performance and they begin by trading small sums of money using household data from finland the article estimates a structural model of learning and trading the estimated model shows that investors trade to learn even if they are pessimistic about their abilities as traders it also demonstrates that realized returns are significantly downward biased measures of investors true abilities the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

negotiated block trades and corporate control we identify negotiated trades of large percentage blocks of stock as corporate control transactions when a block trades and the firm is not fully acquired cumulative abnormal returns average 5 6 and 33 of the chief executives are replaced within a year stock price increases are larger when control passes to the new blockholder when management does not resist the blockholder s effort to influence corporate policy and when the block purchaser eventually fully acquires the firm these findings suggest that the specific skills and expertise of blockholders and not just the concentration of ownership are important determinants of firm value we examine 106 negotiated trades of at least 5 of the common stock of new york stock exchange nyse and american stock exchange amex listed corporations our primary objective is to assess the impact of these transactions on the firms whose shares are traded we also investigate the importance of active block investor s specific managerial expertise and incentives for firm value the emerging literature on concentrated ownership focuses on how the level of ownership affects a blockholder s incentives to undertake a variety of corporate decisions although it has been recognized that a blockholder s identity also can be important less attention has been paid to this issue several recent studies however provide evidence that blockholders incentives and expertise are not homogeneous for example holderness and sheehan 1985 find that the stock market reacts more favorably to initial block accumulations by six controversial investors who are often portrayed in the press as raiders than to initial accumulations by a random sample of investors morck shleifer and vishny 1988 find that firm value tends to be lower when the firm is run by a member of the founder s family than when it is run by an officer unrelated to the founder brickley lease and smith 1988 document that institutional blockholders are less willing to vote against management on antitakeover amendments when they are likely to have business dealings with the firm when a block trades the concentration of ownership typically does not change but the blockholder s identity does

joint liability versus individual liability in credit contracts abstract i offer an explanation for the coexistence of joint liability and individual liability microcredit contracts i show that both contracts maximize welfare when credit is rationed due to limited liability but for different borrowers borrowers monitor each other when liability is joint while the lender monitors individual loans joint liability offers poorer borrowers larger loans with less monitoring effort than would have to be exerted by the lender individual liability offers the wealthier among credit constrained borrowers larger loans even without monitoring the theory explains why individual loans serve the wealthier among poor borrowers and are larger and why businesses funded with individual loans grow more

caregiving to elderly parents and employment status of european mature women abstract we study the prevalence of informal caregiving to elderly parents by their mature daughters in europe and the links between parental health intense daily caregiving and the employment status of daughters we group data from share into three country pools north central and south which differ in the availability of public formal care services and female labor market attachment there is a strong north south gradient in the positive effect of parental ill health on the probability of daily caregiving the loss of employment ascribable to daily informal caregiving seems negligible except in southern countries we use a time allocation model to provide a link to an empirical iv treatment effects framework and to interpret our findings

help and factionalism in politics and organizations whether in electoral politics or promotions within organizations players often face the dilemma of whether to enter the contest or to assist other candidates this article analyzes incentives in a rank order tournament when the winner has control over resources that he can distribute to his supporters some players may then be encouraged to help others in exchange for paybacks resulting in factionalism with leaders and supporters sorted by ability the number and the size of factions depend on the reward structure of the contest and the distribution of abilities these implications are corroborated by data on u s gubernatorial primary elections

bundling decisions in procurement auctions with sequential tasks abstract this paper investigates the principal s bundling decision during a procurement auction for a project consisting of two sequential tasks in which task externality exists and information arrives sequentially we show that although increasing the number of bidders in the market for the second task always tilts the principal s choice toward unbundling increasing the number of consortiums that can perform both tasks tilts the principal s preference toward bundling if the externality is negative

beneficial collusion in corruption control the case of nonmonetary penalties abstract we analyze a corruption model where a principal seeks to control an agent s corruption by supplementing a costless noncollusive outside detector such as the media with a collusive internal supervisor the principal s objective is to minimize the overall costs made up of enforcement costs and social costs of corruption if the penalties on the corrupt agent and a failing supervisor are nonmonetary in nature and yet the two parties can engage in monetary side transfers the principal may stand to benefit by allowing supervisor agent collusion this benefit may even prompt the principal to actively encourage collusion by hiring a dishonest supervisor in strict preference over an honest supervisor

communication costs information acquisition and voting decisions in proxy contests this article synthesizes some recent progress in the theories of corporate control and political lobbying to model the proxy campaign as a political campaign the model yields a number of testable implications only some of which have been examined in the literature for example if the loss from voting for a bad dissident exceeds the gain from voting for a good dissident the model predicts that as communication costs fall the number of proxy fights increases announcement day returns decrease and the fraction of dissident wins first increases and then decreases article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

collusion delegation and supervision with soft information this paper derives an equivalence principle between organizational forms of supervisory and productive activities we consider an organization with an agent privately informed on his productivity and a risk averse supervisor getting signals on the agent s type in a centralized organization the principal can communicate and contract with both the supervisor and the agent however these two agents can collude against the principal in a decentralized organization the principal only communicates and contracts with the supervisor who in turn sub contracts with the agent we show that the two organizations achieve the same outcome we discuss this equivalence and provide various comparative statics results to assess the e ciency of supervisory structures

the effect of job heterogeneity on reservation wages this paper develops a model of job search in which jobs differ in the amount of inspection and experience uncertainty under these circumstances reservation wages may not remain constant or decrease over an unemployment spell even if job offer rates are constant over an unemployment spell negative duration dependence of the reemployment hazard can occur when individuals search amongst a variety of jobs since this duration dependence is a result of time varying unobserved heterogeneity conventional methods for controlling for unobserved heterogeneity in reduced form hazard models are inappropriate copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

collateral taxes and leverage we quantify the importance of collateral versus taxes for firms capital structures we estimate a dynamic model in which a taxable firm seeks financing for investment and a dynamic contracting environment motivates endogenous collateral constraints optimal leverage stays a safe distance from the constraint balancing the tax benefit of debt with the cost of lost financial flexibility we estimate this flexibility cost to be 7 2 of firm assets a percentage that is comparable to the tax benefit models with different tax rates fit the data equally well and leverage responds to the tax rate only when taxes are low

elderly care and intrafamily resource allocation when children migrate this paper considers the intrafamily allocation of elderly care in the context of international migration where migrant children may be able to provide financial assistance to their parents but are unable to offer physical care to investigate sibling interaction i estimate best response functions for individual physical and financial contributions as a function of siblings contributions after addressing the endogeneity of siblings contributions and selection into migration i find evidence that siblings financial contributions function as strategic complements while time contributions operate as strategic substitutes this suggests that contributions may be based on both strategic bequest and public good motivations

the effect of competition on executive compensation and incentives evidence from a quasi natural experiment the research was partially funded by fundacao para a ciencia e a tecnologia through the applied microeconomics research unit nima award no pest oe ege ui3181 2014

inter industry wage differentials revisited wage volatility and the option value of mobility analysis of data from the psid reveals that idiosyncratic wage volatility varies inversely with inter industry wage differentials and is positively correlated with both returns to industry tenure and rates of inter industry mobility an incomplete markets life cycle model in which inter industry mobility decisions and wage differentials are endogenously determined in equilibrium is then developed and shown to be capable of rationalizing these features of the data in the model the ability of worker to switch industries generates option value that is large enough to offset the standard risk premium that workers demand for exposure to excess wage volatility

are bureaucrats paid like ceos performance compensation and turnover of top civil servants abstract recent research explores the effect of financial and career incentives on public sector hiring processes and subsequent performance the reverse relation between performance and bureaucrats compensation and turnover has received only limited attention due to the distinct features of public sector organizations bureaucrats are traditionally argued to require either permanent positions and fixed wages or low powered performance incentives this article studies how the performance of top civil servants in norwegian local governments affects their compensation and turnover we thereby build on a unique new dataset over the period 1991 2014 our results indicate that better performing top civil servants obtain a higher compensation and are less likely to be replaced nonetheless these incentives remain low powered in line with agency theory prescriptions

endogenously chosen boards of directors and their monitoring of the ceo author s hermalin benjamin e abstract this paper develops a model in which the effectiveness of a board s monitoring of the ceo depends on the board s independence the independence of new directors is determined through negotiations implicit or explicit between the existing directors and the ceo the ceo s bargaining position and thus influence over the board selection process depends on an updated estimate of the ceo s ability based on prior performance many empirical findings about board structure and performance arise as equilibrium phenomena in this model we also explore the implications of this model for proposed regulations of corporate governance structures please contact the program in law and economics at boalt hall school of law uc berkeley berkeley ca 94720 for a copy of this paper

contracts under wage compression a case of beneficial collusion this paper considers a principal agent model with adverse selection and limited wage discrimination under wage compression an agent may have an incentive to free ride on other agents by manipulating his private information when collusion among the agents is not possible the principal distorts the output schedule to reduce information rent associated with the free riding opportunity under collusion however the principal can reduce the information rent by inducing side contracts among the agents thus partly removing the distortion in the output schedule we show that side contracts among the agents take place in equilibrium and that the prospect of collusion is beneficial

strategic play among family members when making long term care decisions this paper describes a strategic model of bargaining within a family to determine how to care for an elderly parent we estimate the parameters of the model using data from the national long term care survey we find that the parameter estimates generally make sense and that the model is consistent with the data the results have strong implications for using less structural empirical models for policy analysis

a signal jamming theory of predation we propose a new theory ofpredation based on signal jamming in our model the predator s characteristics are common knowledge while the entrant is uncertain of his own future profitability the entrant uses his current profit to decide whether to remain in the market and the predator preys to jam or interfere with this inference problem thus our model differs from those based on reputation effects in which the predator preys to signal information about himself

managerial attributes and executive compensation we study the role of firm and manager specific heterogeneities in executive compensation we decompose the variation in executive compensation and find that time invariant firm and especially manager fixed effects explain a majority of the variation in executive pay we then show that in many settings it is important to include fixed effects to mitigate potential omitted variable bias furthermore we find that compensation fixed effects are significantly correlated with management styles i e manager fixed effects in corporate policies finally the method used in the article has a number of potential applications in financial economics the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

providing advice to jobseekers at low cost an experimental study on online advice we develop and evaluate experimentally a novel tool that redesigns the job search process by providing tailored advice at low cost we invited jobseekers to our computer facilities for twelve consecutive weekly sessions to search for real jobs on our web interface for one half instead of relying on their own search criteria we use readily available labour market data to display relevant alternative occupations and associated jobs the data indicate that this broadens the set of jobs they consider and increases their job interviews especially for participants who otherwise search narrowly and have been unemployed for a few months

measuring and modeling intergenerational links in relation to long term care long term care has profound intergenerational implications it can be costly for those who need it and onerous for loved ones who provide it we pinpoint three intergenerational aspects of long term care that require further research one concerns the link between costs of private care and intergenerational wealth transfers the second concerns the link between participation in care and the work and welfare of family providers the third relates to intergenerational tensions that these and other late in life interactions create we outline innovations in modeling and measurement that would improve understanding of intergenerational linkages and their implementation in appropriate panel data jel d91 i13 j22

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