a multiplicative model of optimal ceo incentives in market equilibrium this paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium by embedding a moral hazard problem into a talent assignment model by considering multiplicative specifications for the ceo s utility and production functions we generate a number of different results from traditional additive models first both the ceo s low fractional ownership the jensen murphy incentives measure and its negative relationship with firm size can be quantitatively reconciled with optimal contracting and thus need not reflect rent extraction second the dollar change in wealth for a percentage change in firm value divided by annual pay is independent of firm size and therefore a desirable empirical measure of incentives third incentive pay is effective at solving agency problems with multiplicative impacts on firm value such as strategy choice however additive issues such as perk consumption are best addressed through direct monitoring jel d2 d3 g34 j3

independent central banks low inflation at no costs a widely held view suggests that politically independent central banks bring about relatively low and stable inflation rates a more debated question is whether one has to pay for this good outcome with more real instability in his seminal contribution kenneth rogoff 1985 suggests that an independent and inflation averse central bank reduces average inflation but as a result increases output variability the conservative central banker reduces the inflation bias due to the time inconsistency problem but stabilizes less however alesina and summers 1993 do not find that at least within the oecd countries more independent central banks are associated with more variability of growth or unemployment thus they conclude that independent central banks bring about low inflation at no apparent real costs the point of this paper is to provide theoretical underpinnings to this finding which is in contrast to rogoff 1985 2 the basic idea is that one can isolate two sources of output variability one is the economic variability induced by standard exogenous shocks that monetary policy is supposed to stabilize for instance money demand shocks or supply shocks the second source of variability is political or more generally policy induced this is the variability introduced in the system by the uncertainty about the future course of policy for instance alesina 1987 studies the effect of uncertain electoral outcomes in a model where the two contending parties have different preferences over inflation and unemployment an inflation averse independent central banker does not stabilize as much the economic variability in order to keep inflation low and stable this is rogoff s point however by insulating monetary policy from political pressures an independent central bank can reduce the political variability the overall effect of independence on output variability is thus ambiguous this result is consistent at least prima facie with the evidence in alesina and summers 1993 on the lack of correlation between centralbank independence and output variability in fact it is possible that when the politically induced output variability is predominant a more independent central bank reduces average inflation and the variance of output

gender differences in overeducation a test of the theory of differential overqualification there is little question that substantial labormarket differences exist between men and women among the most researched difference is the male female wage gap many different theories are used to explain why men earn more than women one possible reason is based on the limited geographic mobility of married women robert frank 1978 family mobility is a joint decision in which the needs of the husband and wife are balanced to maximize family welfare job motivated relocations are generally made to benefit the primary earner in the family this leads to a constrained job search for the secondary earner as he or she must search for a job in a limited geographic area since the husband is still the primary wage earner in many families the job search of the wife may suffer individuals who are tied to a certain area are labeled tied stayers while secondary earners who move for the benefit of the family are labeled tied movers jacob mincer 1978 the wages of a tied stayer or tied mover may not be substantially lower if the family lives in or moves to a large city if a large labor market has more vacancies the wife may locate a wage offer near the maximum she would find with a nationwide job search however being a tied stayer or tied mover can lower the wife s wage if the family lives in or moves to a small community a small labor market will reduce the likelihood of her finding a job that utilizes her skills as a result she may accept a job for which she is overqualified and thus earn a lower wage this hypothesized relationship between the likelihood of being overqualified and smsa size is termed differential overqualification frank 1978 and haim ofek and yesook merrill 1994 provide support for the theory of differential overqualification by finding that the malefemale wage gap is greater in smaller smsa s while the results are consistent with the existence of differential overqualification they may also result from other situations as well firms in small labor markets may use their monopsony power to keep wages down 2 local demand shocks are found to be a major source of wage variation both across and within local labor markets robert topel 1986 since large labor markets are generally more diversified a demand shock can have a substantial impact on immobile workers in small labor markets another reason for examining differential overqualification involves the assumption that there are more vacancies in large labor markets while there is little doubt that more vacancies exist in large labor markets there are also likely to be more people searching for jobs in large labor markets if the greater number of vacancies is offset by the larger number of searchers it is unclear whether women will be more likely to be overqualified in small labor markets instead of relying on wages to determine if differential overqualification exists we consider an explicit form of overqualification based on education

the incidence of and returns to overeducation in the uk the 1991 wave of the british household panel survey is used to examine the extent of and the returns to overeducation in the uk about 11 of the workers are overeducated while another 9 are undereducated for their job the results show that the allocation of female workers is more efficient than the allocation of males the probability of being overeducated decreases with work experience but increases with tenure overeducated workers earn less while undereducated workers earn more than correctly allocated workers both the hypothesis that productivity is fully embodied and the hypothesis that productivity is completely job determined are rejected by the data it is found that there are substantial wage gains obtainable from a more efficient allocation of skills over jobs

allocation of individuals to job levels under rationing summary we augment an ordered response model for the job level at which individuals desire to work with allowance for individual reporting of a discrepancy between actual and desired job level and we also investigate possible biases from restricting the observations to the employed and omitting the unemployed we find that the latter bias can be ignored and interpret this as evidence that the unemployed are not choosier than the employed people claiming inadequate capability utilization are not markedly differently allocated than those claiming a proper match women s lower job levels cannot be explained from rationing by capability utilization

disability job mismatch earnings and job satisfaction in australia we examine the relationship between disability job mismatch earnings and job satisfaction using panel estimation on data from the household income and labour dynamics in australia hilda survey 2001 08 while we do not find any relationship between work limiting disability and overskilling it appears that there is a positive relationship between work limiting disability and overeducation which is consistent with disability onset leading to downward occupational movement at least in relative terms we find a negative correlation between work limiting disability and both earnings and job satisfaction however there is only evidence of a causal relationship in terms of the latter where the impact of disability is found to be multifaceted

self selection bias in longitudinal estimation of wage gaps cross sectional regression analyses of wage gaps may be biased by omission of unobserved worker characteristics recent studies therefore have used longitudinal data to difference out the effects of such variables this paper however shows that self selection of job changers may cause longitudinal estimation of wage gaps to be inconsistent

ability and power over production in the distribution of earnings t he aggregate distribution of earnings in all western countries is approximately lognormal over most of its range but the earnings of the top 10 or 20 of individuals follow the pareto form which generates a great excess of very high earnings compared with the tail of a lognormal distribution individuals at the top appear to be paid according to the job they perform rather than their ability this paper explains these features in terms of profit maximising behaviour from time to time a single new manager or management team improves a company s profit by millions of dollars per year this shows that a senior manager can influence the company s total output far more than a junior employee his greater influence over output derives from having much more control over the company s resources profit maximising companies offer high salaries for senior management jobs because even a small improvement in their performance leads to a worthwhile increase in output and competitive bidding for the best managers then drives their salaries up to high levels this in outline is the explanation for high earnings developed formally in the rest of this paper

how the market solves an assignment problem the matching of lawyers with legal claims in the market for lawyers observable data on promotion and turnover can be explained by reference to the idea that there is positive assortative mating of lawyers and legal claims there is a scale of resources effect under which it is optimal to assign larger claims to lawyers of higher quality in a law firm the institution of tenure performs a sorting function lawyers found to be of high quality are given tenured positions and the rest leave the value of legal claims handled by a firm determines its sorting problem which in turn determines its promotion ladder and turnover

learning about the nature of production from equilibrium assignment patterns this paper exploits empirically a key insight from lucas 1978 and rosen 1982 that the organization of production and the distribution of earnings across individuals are jointly determined by the equilibrium assignment of individuals to firms and hierarchical positions we study how different classes of production functions generate alternative equilibrium assignments we then use confidential census data on u s law offices to investigate the form that the production function should take to rationalize earnings patterns in legal services we argue that earnings patterns in this industry are consistent with a production function that is characterized by asymmetric sensitivity to the skill of agents in different organizational positions complementarity between managers and workers skill and scale effects in individual skill

measuring over education previous work on over education has assumed homogeneity of workers and jobs relaxing these assumptions we find that over educated workers have lower education credentials than matched graduates among the over educated graduates we distinguish between the apparently over educated workers who have similar unobserved skills as matched graduates and the genuinely over educated workers who have a much lower skill endowment over education is associated with a pay penalty of 5 11 for apparently over educated workers compared with matched graduates and of 22 26 for the genuinely over educated over education originates from the lack of skills of graduates this should be taken into consideration in the current debate on the future of higher education in the uk

should governments of oecd countries worry about graduate underemployment to assess potential public concerns this paper examines theory and evidence surrounding graduate educational underemployment overeducation in this era of mass higher education using a new validated index of graduate jobs we find that the prevalence of graduate underemployment across 21 countries is correlated with the aggregate supply demand imbalance but not with indicators of labour market flexibility underemployment s association with lower job satisfaction and pay is widespread yet in most countries there are external benefits social trust volunteering and political efficacy associated with higher education even for those who are underemployed taken together with existing studies we find that in this era of mass higher education participation under employment is a useful indicator of the extent of macroeconomic disequilibrium in the graduate labour market we conclude that governments should monitor graduate underemployment but that higher education policy should be based on social returns and should recall higher education s wider purposes

mismatch in the spanish labor market overeducation the objective of this article is to explain the job match which is assessed by comparing attained education and job required education as reported by workers we frame our empirical work according to the occupational mobility theory using a cross section of workers from a representative survey of the spanish labor force we consider overeducated workers to be those who report that the level of education their jobs require is below the level of education they have attained our results indicate that overeducated workers have less experience decreased on thejob training and higher turnover than other comparable workers we also observe an improvement in the job match over age and mobility

the impact of surplus schooling on productivity and earnings this article examines the impact of surplus schooling on individual productivity and earnings it proposes a model that divides workers education into two components education that is required and thus fully utilized in the job and education that exceeds the amount required and thus may be underutilized in the job the model is tested with data from the 1969 1973 and 1977 quality of working life surveys quinn and staines 1979 required schooling for each occupation is derived from estimates by job incumbents and by the dictionary of occupational titles the results show thqt surplus or underutilized education is rewarded at a lower rate than required education with the actual return dependent on the type of job

on the optimal realignment of a contest the case of college football this article examines the relationship between demand and scheduling in college football we first derive two different metrics for team quality and then use those metrics to see how they impact attendance we find that there is a positive interaction between the quality of the teams then various simulations are run to see how attendance would change under different scheduling scenarios if teams are put into conferences based on the team quality measures the average per game attendance only rises 1 2 this is true if 1 year or 10 year quality measures are used however our simulation suggests that this effect would be more than offset mainly because schools with larger capacity would play fewer home games and so aggregate attendance would fall we discuss whether this effect would be mitigated by capacity adjustments in the longer term jel l83 z20 c78

horizontal mismatch and vocational education recent literature suggests that vocational education and training vet provides individuals with smoother transitions into the labour market but lower wages over the lifecycle compared to general

can higher inflation reduce real interest rates in the long run this paper describes a simple general equilibrium model in which a permanent easing of monetary policy engineered via open market purchases may produce a permanent decrease in the real interest rate and a permanent increase in the inflation rate under somewhat stronger assumptions the nominal interest rate may also decline est ce qu une inflation plus forte peut reduire les taux d interet reels a long terme ce m6moire pr6sente un modele d 6quilibre g6n6ral simple dans lequel un adoucissement per manent de la politique mon6taire engendr6 par des op6rations d open market peut pro duire une chute permanente du taux d int6ret r6el et un accroissement permanent du taux d inflation dans le cadre de postulats plus contraignants le taux d interet nominal peut meme chuter

skills mismatch concepts measurement and policy approaches the term skills mismatch is very broad and can relate to many forms of labour market friction including vertical mismatch skill gaps skill shortages field of study horizontal mismatch and skill obsolescence in this paper we provide a clear overview of each concept and discuss the measurement and inter relatedness of different forms of mismatch we present a comprehensive analysis of the current position of the literature on skills mismatch and highlight areas which are relatively underdeveloped and may warrant further research using data from the european skills and jobs survey we assess the incidence of various combinations of skills mismatch across the eu finally we review the european commission s country specific recommendations and find that skills mismatch when referring to underutilized human capital in the form of overeducation and skills underutilization receives little policy attention in cases where skills mismatch forms part of policy recommendations the policy advice is either vague or addresses the areas of mismatch for which there is the least available evidence

worker allocation hierarchies and the wage distribution economists have traditionally viewed the allocation of workers among jobs through the concept of comparative advantage this paper investigates hierarchical production models which display an absence of comparative advantage in order to demonstrate that for hierarchical production there is a second allocating factor which plays an important role two results are found first the allocation of workers among jobs tends to match high ability workers with positions which value ability highly second despite the fact that the models display an absence of comparative advantage i e the standard theoretical explanation for why wage distributions might be skewed the models wage distributions are skewed to the right relative to the underlying ability distributions

policy cooperation among benevolent governments may be undesirable this paper presents a simple counterexample to the belief that policy cooperation among benevolent governments is desirable it also explains circumstances under which such counterexamples are possible and relates them to the literature on time inconsistency since the work of hamada 1976 investigating the effects of increasing policy cooperation among countries has been a major topic in international economics a standard conclusion of this work is that increasing policy cooperation among countries is desirable in a seminal paper rogoff 1985 has challenged this view using a simple monetary model rogoff shows that cooperation among policy makers can lead to a lower level of welfare than noncooperation does rogoff s result has caused much consternation among those who advocate policy cooperation and his work has been criticized along several dimensions for example some authors including canzoneri and henderson 1988 have noted that a key assumption in rogoff s model is that the objective function of each country s policy maker does not coincide with the objective function of its residents indeed if in his model policy makers maximize the welfare of their country s residents the counterexample is overturned and cooperation strictly dominates noncooperation this feature leads some to interpret rogoff s result as simply saying that if policy makers form a coalition against the private sector they may be worse off than if they do not others such as neck and dockner 1988 have claimed that rogoff s result depends on private agents acting strategically under this interpretation rogoff s result is relevant to say economies with a large trade union but not to economies with a large number of competitive private agents in a somewhat different vein persson 1988 and especially devereux 1986a b have questioned the significance of welfare comparisons across different institutional regimes in a model without a solid foundation for the behavioural relationships this paper presents a simple model in which governments are benevolent but cooperation is still undesirable the model is a two country version of fischer s 1980 optimal tax model in it private agents are competitive in that each agent takes both prices and government policies as uninfluenced by his actions and each government maximizes the welfare of its country s residents in the paper the two different regimes cooperative and noncooperative

the importance of bundling in a gorman lancaster model of earnings the idea that the labor market of individuals can be decomposed into payments to separate productive attributes has an enduring appeal in economics assuming that demographic groups differ only in their endowments of productive characteristics it is possible to rationalize observed demographic earnings differentials without invoking the arguments that characteristics specific to a particular demographic group are direct objects of employer demand by aggregating skills over all demographic groups it is possible to produce a theory of the market determination of the prices of skills held in different amounts by different demographic groups this paper considers conditions under which characteristics are uniformly priced across sectors of a multisector economy the paper presents empirical evidence that rejects uniform pricing of characteristics as a description of the us labor market bundling may account for this evudence but other hypotheses do as well authors

frictional assignment i efficiency abstract this paper examines the two sided matching problem where the agents on each side of the market are heterogeneous and the matching process is time consuming this is cast in a labor market setting where workers of different skills match with different machine qualities i characterize the efficient allocation and then show that it can be decentralized by a market mechanism the efficient assignment is not always positively assortative despite the fact that machine qualities and skills are complementary in production to decentralize the efficient allocation the market mechanism requires the firms to post wages and commit each machine quality to a particular skill implications on wage inequality are briefly examined journal of economic literature classification numbers j31 e24 j64

pay technology and the cost of worker absence i introduction the complexity of patterns of worker absence is well known but is yielding reluctantly to studies that use highly detailed information about individual workers and their work environments to date these studies have focussed on how specific contractual details affect worker absenteeism rates 1 in this paper we instead take an equilibrium perspective where we assume heterogeneous firms and heterogeneous workers participate in a competitive labor market by understanding why firms with different technologies may have different policies toward absenteeism we can begin to explain observed differences in absenteeism rates across workers and firms the empirical framework is based on coles and treble 1996 which considers an equilibrium assignment model with heterogeneous firms and workers the standard assignment framework 2 assumes that each filled job is characterized by one machine of quality q and one employee with skill level s a competitive equilibrium yields a wage schedule w and an assignment rule q where a worker of skill s is hired at wage w w s by a firm holding machine q q s coles and treble 1996 do not assume that workers are differently skilled instead workers have different propensities to go absent also instead of a one worker one machine production process firms utilize different production technologies some use an assembly line technology where output requires that a sufficient number of workers show up for work and others use a linear production technology in which there are constant marginal returns to labor for reasons that will become clear a competitive equilibrium yields a wage schedule and an assignment rule that depend on worker propensities to go absent specifically workers with a lower propensity to go absent earn a higher wage and are employed in firms using assembly line technologies the key insight is that firms who operate assembly line technologies have a different shadow cost of absenteeism from those which operate a linear technology as in weiss 1985 and coles and treble 1993 in the latter technology an absence by one particular worker does not affect the marginal productivity of other workers at the firm this is not true in an assembly line firm or in production functions where labor inputs are strict complements as in kremer 1993 coles and treble 1996 consider a market equilibrium in which workers are also heterogeneous say workers have different family responsibilities in this case a competitive labor market implies equilibrium sorting by firms and workers assembly line firms require a low level of absenteeism and pay a relatively high wage to compensate workers for attending work reliably we refer to this as the shadow cost of absenteeism workers who have a comparative advantage in attending work reliably say those who do not have to look after children when the children are sick take employment in assembly line firms and enjoy the wage premium attached to employment there we refer to this as the shadow price of absenteeism conversely those who appreciate greater flexibility in work attendance take employment in the linear technology firms and in equilibrium earn a lower average wage rate although absenteeism may be costly to firms observed absenteeism rates are not necessarily inefficient the worker who misses a day at work to look after sick children or enjoy a sports event is expressing a trade off between workplace production and home production where home productivity is perhaps subject to idiosyncratic shocks efficient contracting implies that firms and workers agree to an acceptable absenteeism rate and a compensating wage differential efficient sorting implies that those workers who can commit to attending work reliably accept employment in assembly line occupations and so earn a wage premium reflecting the shadow price of absenteeism our goal is to identify and measure this shadow price using a unique data set from france

does unmeasured ability explain inter industry wage differentials this paper provides empirical assessments of the two leading explanations of measured inter industry wage differentials 1 true wage differentials exist across industries and 2 the measured differentials simply reflect unmeasured differences in workers productive abilities first we summarize the existing evidence on the unmeasured ability explanation second we construct a simple model which shows that if matching is important then endogenous job change decisions can create important self selection biases even in first differenced estimates of industry wage differentials third we analyze a sample that approximates the experiment of exogenous job loss we find that i the wage change experienced by a typical industry switcher closely resembles the difference in the relevant industry differentials estimated in a cross section and ii pre displacement industry affiliation plays an important role in post displacement wage determination

measuring cartel rents in the college basketball player recruitment market the national collegiate athletic association ncaa prohibits direct payments to college atheltes and limits the value of a scholarship to 20 000 these rules restrict competition among schools for players so that players will not be paid their marginal revenue product therefore rents are redistributed from players to schools the rent generated by a premium college basketball player is measured the empirical results show that a top college player may generate up to 1000000 in annual rents for the team

overeducation in the labor market this article examines the reasons for the observed discrepancy between workers actual and required levels of schooling and the resulting differences in returns to schooling overeducated workers are found to be younger and to have lower amounts of on the job training than workers with the required level of schooling they also have higher rates of firm and occupational mobility characterized by movement of higher level occupations the findings suggest that overeducation can be explained by the trade off between schooling and other components of human capital and by the mobility patterns of overeducated workers

the impact of surplus schooling on earnings some additional findings this paper examines the impact of overeducation or surplus schooling on earnings overeducated workers are defined as those with educational attainments substantially above the mean for their specific occupations two models are estimated using data from the 1980 census though our models data and measure of overeducation are different from those used by rumberger 1987 our results are similar our results show that overeducated workers often earn less than their adequately educated and undereducated counterparts

self selection and the distribution of hourly wages this article formulates and estimates alternative equilibrium models of industrial wage determination and self selection in explaining industrial wage differentials we find that it is important to account for heterogeneous sector specific skills and self selection decisions by agents concerning their sector of employment the classical roy model is rejected so is an efficiency units model of the labor market a revised roy model that accounts for comparative advantage in the choice of industrial sectors and choice between market and nonmarket work is much more successful in explaining cross section wage distributions and their evolution over time

the revenues associated with relaxing admission standards at division i a colleges the pecuniary rewards associated with acquiring premium college athletes induce schools to lower academic standards for incoming players this study empirically examines the incentive for division i a schools those competing at the highest level of athletics in the usa to relax admission standards for college football players granting admissions to players with lower academic profiles enlarges a team s recruiting pool so that it acquires a greater number of premium players which in turn increases revenues for the school

marriage markets and assortative mating with household public goods theoretical results and empirical implications this paper analyzes marriage market equilibria when the gains from marriage result from joint consumption of household public goods assuming transferable utility within marriage the paper proves that marriage markets will be characterized by positive assortative mating on wealth when spouses differ only in endowments and the gains to marriage result only from public goods when spouses differ in wages and household public goods are produced at home the results imply offsetting effects with public good economies creating an incentive for positive assortative mating on wages and gains from specialization creating an incentive for negative assortative mating on wages the results help explain the persistent lack of empirical support for becker s prediction of negative assortative mating on wages and have implications for empirical analysis of all joint living arrangement decisions

education matching and the allocative value of romance societies are characterized by customs governing the allocation of non market goods such as marital partnerships we explore how such customs affect the educational investment decisions of young singles and the subsequent joint labour supply decisions of partnered couples we consider two separate matching paradigms for agents with heterogeneous abilities one where partners marry for money and the other where partners marry for romantic reasons orthogonal to productivity or debt these generate different investment incentives and therefore have a real impact on the market economy while marrying for money generates greater investment efficiency romantic matching generates greater allocative efficiency since more high ability individuals participate in the labour market the analysis offers the possibility of explaining cross country differences in educational investments and labour force participation based on matching regimes

market forces and ceo pay shocks to ceo demand induced by ipo waves i develop a simple competitive equilibrium model and derive the prediction that ceo pay size elasticity increases when more firms compete for an inelastic supply of managers using industry level ipo waves as a proxy for increased competition for ceos i find that pay size elasticity increases by 6 with a one standard deviation increase in ipo activity this effect is stronger in specialized industries in addition increased ipo activity leads to a greater likelihood of executive transitions between firms these findings indicate that market forces play a key role in the determination of ceo pay received august 6 2015 editorial decision september 24 2016 by editor francesca cornelli

some even more unpleasant monetarist arithmetic does monetizing a deficit always result in a higher rate of inflation than bond financing the same deficit t j sargent and n wallace 1981 produced conditions under which the answer was negative unpleasant monetarist arithmetic subsequent authors have challenged the empirical validity of these conditions the authors develop a model similar to that of sargent and wallace and modify it to allow for financial intermediation in the presence of reserve requirements unpleasant arithmetic arises even when the real rate of growth exceeds the real return on bonds moreover under empirically plausible restrictions there exists a unique equilibrium no laffer curve considerations arise

overeducation undereducation and the british labour market this paper addresses the issue of overeducation and undereducation using for the first time a british dataset which contains explicit information on the level of required education to enter a job across the generality of occupations three key issues within the overeducation literature are addressed first what determines the existence of over and undereducation and to what extent are over and undereducation substitutes for experience tenure and training second to what extent are over and undereducation temporary or permanent phenomena third what are the returns to over and undereducation and do certain stylized facts discovered for the us and a number of european countries hold for britain

education and skills mismatch in the italian graduate labour market this paper focuses on education and skills mismatch among italian graduates indicators for over and under utilization of education and under utilization of skills are included as explanatory factors in a wage equation testing theories that could explain the effect of over schooling on wages we find little evidence to support assignment theory and also identify a relatively weak wage effect arising from educational mismatch associated with employers as opposed to employees perceptions of the job requirements our interpretation is that some employers have re categorized jobs as requiring a degree when they were previously filled by non graduates and many have not altered pay scales accordingly

an estimate of the rent generated by a premium college football player the national collegiate athletic association limits the payments athletes can receive for their services colleges are effectively monosony employers so players will not be paid their marginal revenue product therefore colleges capture an economic rent from players this paper measures these rents by estimating the marginal revenue product of a top college football player the empirical results suggest that a premium college player generates over 500 000 in annual revenues for his team

a note on aggregation of skills and labor quality we use a unique new data set that combines data on individual workers and their employers to estimate marginal productivity differentials among different types of workers we then compare these to estimated relative wages leading to new evidence on

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

is there a genuine under utilization of skills amongst the over qualified two theories of over qualification are considered namely mismatch whereby workers do not find the most appropriate jobs for their skills because of imperfect information or labour market rigidities and heterogeneous workers whereby individuals with the same qualifications have different actual skill levels so that they can be over qualified in terms of formal qualifications while their skills are actually appropriate for the jobs that they do the evidence suggests that both theories are relevant in certain situations

heterogeneous firms and the organization of production firms in the same industry exhibit systematic differences in the organization of production and the structure of employment entrepreneurial ability is the specific scarce input that limits the size of a firm this input must be allocated to two activities coordinating production and monitoring workers able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms greater ability implies a higher shadow price of time which increases the implicit costs of monitoring a dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms differences in monitoring costs affect the choice of worker productivities the design of products and the organization of production the monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior

hedonic prices and implicit markets estimating demand and supply functions for differentiated products in choosing the level of quality to purchase the buyer of a differentiated product also chooses a point on the marginal price schedule for that product hence in general the demand functions for product characteristics cannot be consistently estimated by ordinary least squares market equilibrium results in a matching of characteristics of demanders and suppliers this matching restricts the use of buyer and seller characteristics as instruments when estimating demand and supply functions for product characteristics the paper develops these issues a stochastic structure for hedonic equilibrium models is then proposed identification results are presented and estimation procedures are outlined

taxation and uncertainty while taxes may be certain u s tax policy has certainly not been furthermore intrinsic economic risk makes investment decisions risky therefore a serious examination of the effects of tax policy on dynamic economic behavior should consider both sources of uncertainty this paper presents a simple theoretical and computational model that can analyze both intrinsic risk and uncertain taxation furthermore it will be clear that these techniques will be useful for examining general problems of taxation and risk when studying the impact of past and or proposed tax changes one of two extreme assumptions are usually made either agents are perfectly aware of future tax policy a perfect foresight assumption or they always believe that no change will ever occur a myopic foresight assumption these two assumptions yield substantially different views of recent tax experience as alan auerbach and james hines 1987 demonstrate in a partial equilibrium context both are clearly wrong the myopic specification assumes that individuals believe at each point in time that the current tax law will surely continue forever even after they have been hit repeatedly with tax changes on the other hand it is absurd to think that in say 1977 a significant number of individuals perfectly knew the various tax changes that would occur during the following decade this paper analyzes a dynamic general equilibrium model wherein taxpayers understand the uncertainty in tax policy when making their deci

inflation taxes and the coordination of monetary and fiscal policy by use of a game of chicken in this study some of the consequences of an uncertain policy struggle game of chicken between independent taxing agencies a monetary and a fiscal authority are exam ined we show that policy uncertainty may improve upon regimes where there is no uncer tainty and one agency succeeds in implementing a low tax policy at the expense of the other agency an uncertain tax policy never dominates a fully coordinated tax policy but it can move average tax rates in the right direction in this sense the game of chicken between agencies can be beneficial and can compensate for the lack of a specific coordinating admin

field of study earnings and self selection why do individuals choose different types of post secondary education and what are the labor market consequences of those choices we show that answering these questions is difficult because individuals choose between several unordered alternatives even with a valid instrument for every type of education instrumental variables estimation of the payoffs require information about individuals ranking of education types or strong additional assumptions like constant effects or restrictive preferences these identification results motivate and guide our empirical analysis of the choice of and payoff to field of study our context is norway s post secondary education system where a centralized admission process covers almost all universities and colleges this process creates credible instruments from discontinuities which effectively randomize applicants near unpredictable admission cutoffs into different fields of study at the same time it provides us with strategy proof measures of individuals ranking of fields taken together this allows us to estimate the payoffs to different fields while correcting for selection bias and keeping the next best alternatives as measured at the time of application fixed we find that different fields have widely different payoffs even after accounting for institutional differences and quality of peer groups for many fields the payoffs rival the college wage premiums suggesting the choice of field is potentially as important as the decision to enroll in college the estimated payoffs are consistent with individuals choosing fields in which they have comparative advantage we also test and reject assumptions of constant effects or restrictive preferences suggesting that information on next best alternatives is essential to identify payoffs to field of study