why do labor contracts offer guaranteed annual wage increments an interesting feature of wage contracts for tenured academic staff in united kingdom universities is that they formally embody the principal that wages should increase with seniority individuals are hired at or near the bottom of a wage scale that has seventeen different wage levels each separated by approximately 5 once hired lecturers are guaranteed the right to move at least one step up this pay ladder each year of course this whole scale is renegotiated annually resulting in additional wage increases superimposed on the automatic increments many other u k public sector labor contracts employ a similar wage ladder for example those of civil servants local government employees school teachers and health service workers although employment of these groups is very secure contracts of university lecturers are particularly interesting because tenure guarantees to the individual over some range both increasing wages and future employment thus although the evidence for seniority wages from econometric studies has been mixed 1 2 we have in these contracts a clear cut case to explain and one with the additional wrinkle of guaranteed future employment in this paper we adopt an explicitly multi period framework in order to investigate guaranteed wage increments over time a critical feature of the model is the assumption that consumption is allocated across periods according to the life cycle hypothesis multi period contracts are therefore evaluated by the lifetime utility which they yield it should be emphasized that even for contracts where wage increments are guaranteed there still remains residual uncertainty about future earnings since the possibility exists that a worker may receive a better outside offer in section ii this uncertainty is motivated by incomplete search and in section iii by the fact that ability only becomes known after the first period of employment these essentially represent different interpretations of the same model the analysis of section ii assumes that all workers are offered a tenure contract and it is shown that seniority wages arise naturally in such a framework this in followed in section iii by a joint analysis of seniority wages and the firm s decision whether to offer a tenure contract in this case seniority wages can again arise and importantly tenure contracts can actually be more profitable for the firm than contracts with no tenure two

the efficiency of equity in organizational decision processes it is now widely accepted that rent seeking anne krueger 1974 or directly unproductive profit seeking jagdish bhagwati 1982 may cause inefficiencies in the context of public sector decisions the possibility that government decisions for example about taxes quotas franchises or standards may create or redistribute rents induces private parties to spend valuable resources to influence that distribution even when such expenditures carry no social benefit moreover the social cost of rent seeking can exceed the value of the resources spent trying to gain and protect rents for example because the fear of losing wealth through redistribution reduces the incentives for wealth creation treating rent seeking activities as characteristic of public sector decision processes ignores the fact that similar phenomena are to be found in firms unions and other private sector organizations our recent work milgrom 1988 our 1988 1990 papers attempts to identify the advantages of decision processes private or public that permit rent seeking and to incorporate these into a cost benefit analysis of optimal decision processes our work begins with an analysis of why rents and quasi rents arise in organizations and of the forms that the rent seeking they engender may take some measures to insulate the decision process from rent seeking such as limits on the provision of information by interested parties or restrictions on the range of options considered may degrade the quality of decisions especially by blocking the flow of valuable information optimal decision processes balance the costs of rent seeking against the value of information obtained several aspects of the rules affect the opportunities that members have to spend resources trying to alter the distribution of rents to ascertain the possibilities for rent seeking the analyst must ask questions like can the parties propose new initiatives at any time can they give volumes of testimony in a form of their own choosing can they appeal adverse decisions are decision makers obliged to respond to the parties initiatives is the range of actions that they can take in response relatively broad rather than being tightly constrained by property rights or other formal rules more affirmative answers to these questions lead to more opportunities or greater incentives for costly rent seeking as a kind of shorthand we call decision processes that have more of these elements more open processes the very elements that make a process open to rent seeking may also add flexibility and responsiveness helping to ensure that important ideas and proposals are fully considered from this perspective the benefits of openness can in principle be measured by a value of information calculation in the usual manner of statistical decision theory weighing the costs and benefits it follows that a more open process is more desirable when the rents available for redistribution are low and the value of the information that might be acquired is high conversely when the potential for redistribution is high and the value of information is low the optimal decision process is less open this kind of reasoning helps to illuminate the variations in the decision processes that are found in many organizations we have discussed a number of examples in our earlier work including the characteristics of personnel departments the contrasting patterns of decision making employment and compensation in u s and japanese firms professor of economics stanford university and jonathan b lovelace professor of economics graduate school of business stanford university stanford ca 94305 respectively this work was supported by the national science foundation

the stability of the demand for international reserves abstract empirical studies based on data from the 1960s and 1970s yielded estimated demands for international reserves that have been regarded as stable functions of a limited set of variables exept during the period surrounding the collapse of the bretton woods system this paper examines the stability of these estimated demands by extending the samles to include data from the 1980s the new estimation results indicate that the emergenceof external payments difficulties and reduced access to international financial markets of many countries have been accompanied by changes in the changes in the estimated demands for reserves that were as large as those that occurred during the collapse ofthe bretton woods system

incentives and careers in academia theory and empirical analysis we study career concerns in italian academia we mould our empirical analysis on the standard model of contests formalised in the multi unit all pay auction the number of posts the number of app

standard promotion practices versus up or out contracts this article develops a theory concerning the choice between standard promotion practices and up or out contracts our theory is based on asymmetric learning and promotion incentives we find that firms employ up or out contracts when firm specific human capital is low and standard promotion practices when it is high we also find that if commitment to a wage floor is feasible and effort provision is important up or out is employed when low and high level jobs are similar these results are consistent with many of the settings in which up or out is typically observed such as law firms and academia

managerial leverage is limited by the extent of the market hierarchies specialization and the utilization of lawyers human capital abstract this paper examines the role of hierarchies in the organization of human capital intensive production we develop an equilibrium model of hierarchical organization and provide empirical evidence based on confidential data on thousands of law offices the equilibrium assignment of individuals to hierarchical positions varies with the degree of field specialization which increases as the extent of the market increases as individuals knowledge becomes narrower but deeper managerial leverage the number of workers per manager optimally increases to exploit this depth consistent with our model the share of lawyers who work in hierarchies and the ratio of associates to partners increase as market size increases and lawyers field specialize other results provide evidence against alternative interpretations that emphasize unobserved differences in the distribution of demand or firm size effects and lend additional support to the view that in legal services hierarchies help exploit increasing re

does deposit insurance stimulate capital inflows abstract we empirically investigate the relationship between explicit deposit insurance and private capital inflows to developing countries during the 1990s the results do not indicate a significant relationship between explicit deposit insurance and the scale of capital inflows

do economics departments with lower tenure probabilities pay higher faculty salaries the simplest competitive labor market model asserts that if tenure is a desirable job characteristic for professors they should be willing to pay for it by accepting lower salaries conversely if an institution unilaterally reduces the probability that its assistant professors receive tenure it will have to pay higher salaries to attract new faculty our paper tests this theory using data on salary offers accepted by new assistant professors at economics departments in the united states during the 1974 75 to 1980 81 period along with data on the proportion of new ph d s hired by each department between 1970 and 1980 that received tenure in the department or at a comparable or higher quality department within the first eight years of receipt of their ph d s we find evidence that supports the hypothesis that a tradeoff existed equally importantly departments that offered low tenure probabilities to assistant professors also paid higher salaries to their tenured faculty we attribute this to low tenur

do depositors punish banks for bad behavior market discipline deposit insurance and banking crises this paper empirically investigates two issues largely unexplored by the literature on market discipline we evaluate the interaction between market discipline and deposit insurance and the impact of banking crises on market discipline we focus on the experiences of argentina chile and mexico during the 1980s and 1990s we find that depositors discipline banks by withdrawing deposits and by requiring higher interest rates deposit insurance does not appear to diminish the extent of market discipline aggregate shocks affect deposits and interest rates during crises regardless of bank fundamentals and investors responsiveness to bank risk taking increases in the aftermath of crises

financial crises and cross border banking new evidence the surge in cross border banking prior to global financial crises took place not only in the interbank market but also in the retail market e g between banks and their private customers abroad we utilize confidential data to estimate for the first time the effects of banking currency and twin crises on the geography of cross border deposits and loans we show that each crisis type has its own specific effects that these effects themselves lead to sustained increases in cross border banking and that they are different for cross border loans and deposits respectively

academic tenure posttenure effort and contractual damages i introduction in this article we explore the incentive properties of academic tenure relative to alternatives that might be substitutes for tenure we do not present a comprehensive theory of academic tenure but rather emphasize the role of tenure in providing an incentive for incumbent faculty to reveal the characteristics of recruits and to maintain their own posttenure performance academic tenure often implies that its holder cannot be removed from post except for good cause usually based on gross moral turpitude or gross incompetence mcpherson and schapiro 1999 such removal is historically characterized by a costly procedure governed by organizational or state statutes tepker 1993 our results suggest that tenure is just one of many mechanisms able to achieve honest revelation and that it has important interactions with other mechanisms there is no question that tenure is a constraint to administrators and limits the discretion of university managers the objective of our article is not to provide a new explanation for academic tenure but to show how tenure could in principle be replaced by contractual damages and how it more generally interacts with damages we believe it is worth theoretically exploring alternatives to tenure because universities appear to ignore tenure statutes on occasions in particular it is now common for schools to ignore orders to reinstate dismissed apparently tenured faculty and to choose to pay damages instead tepker 1993 carmichael s 1988 model suggests that damages can achieve efficient information revelation where the value of academics next best occupations are known a damages payment equal to the difference between current expected earnings and next best earnings that is restoring the victim s expectations ignoring nonpecuniary benefits for simplicity will then make an incumbent indifferent between remaining and being sacked and happy to reveal the skills of entrants carmichael rules out the payment of expectation damages and concentrates on the use of tenure which creates a requirement for specific performance by the university we contend that the frequent award of expectation damages by courts faced with cases of refusal to reinstate suggests that more attention should be given to the damages option 1 and indeed to possible interactions between tenure and its alternatives our contention is reinforced by the observation that many universities are currently softening tenure by introducing devices like five yearly reviews for tenured faculty note also that the role of tenure looms large once it has been awarded directing our attention toward a model of posttenure performance particularly if it could be lost possibly subject to the payment of contract damages our model explores the role of contractual damages in replacing academic tenure i e reinstatement as well as addressing the problem of revelation we depart from previous literature in considering that it is now common practice for university departments to use rankings and publication records to evaluate faculty thus reducing the asymmetry of information with respect to research and productivity detected by carmichael 1988 p 460 we focus on posttenure performance in the shadow of the threat of dismissal followed by payment of contract damages dnes and seaton 1998 2001 examine the reform of academic tenure in the united kingdom by the 1988 education reform act which allowed softer tenure to be chosen by universities 2 the authors tested the hypothesis that softening tenure encourages incumbent academics to consolidate their hold on academic life it seems that after 1988 the distinction between hard tenure and soft tenure universities persisted that is many british universities chose to continue operating a hard tenure system allowing softer tenure has not hindered the improvement of academic performance in the context of increased pressures from a research quality exercise that is periodically carried out by the higher education funding council

demand for international reserves corrections for serial correlation and heteroscedasticity 1987 demand for international reserves corrections for serial correlation and heteroscedasticity applied economics vol 19 no 5 pp 609 618

the travels of a bank deposit in turbulent times the importance of deposit insurance design for cross border deposits we examine the impact of the existence on an explicit deposit insurance di scheme and its design features on bilateral cross border deposits cbd in a gravity model setting we find that both the absolute quality of a country s di and its relative quality vis a vis other countries di generally affect depositor behavior however during systemic banking crises cross border depositors primarily seek countries with the best di schemes similarly during the 2008 2009 great financial crisis the emergency actions taken by the governments which supply and maintain these safe havens have led to substantial relocations of cbd jel f34 g18

kalman filter approach to estimate the demand for international reserves a few studies have provided empirical support for the fact that the demand for international reserves experienced structural instability in 1973 and 1979 due to a change in exchange rate system and oil price shocks thus under the current managed float due to exchange rate and oil price fluctuations coefficient estimates could be time dependent after showing that indeed estimated coefficients are time dependent the kalman filter estimation method is employed and the reserve demand function for 19 industrial countries estimated the kalman filter approach incorporates the time varying properties of coefficients estimates

introduction to the symposium on contemporary banking research the use of fixed effects to disentangle loan demand from loan supply with the onset of the financial crisis disentangling the effects of loan demand and supply in contemporary banking research has become vital for a proper assessment of supply related banking shocks these shocks may negatively affect the real economy through many channels such as the lending channel of monetary policy transmission the bank risk taking channel or the evaluation of macroprudential policy efficiency all these rely on separating the two lending components empirical identification has largely relied on the use of demand related fixed effects which has also been applied in several analyses within this symposium

the determinants of cross border equity flows abstract we explore a new panel data set on bilateral gross cross border equity flows between 14 countries 1989 1996 we show that a gravity model explains international transactions in financial assets at least as well as goods trade transactions gross transaction flows depend on market size in source and destination country as well as trading costs in which both information and the transaction technology play a role distance proxies some information costs and other variables explicitly represent information transmission an information asymmetry between domestic and foreign investors and the efficiency of transactions the geography of information is the main determinant of the pattern of international transactions while there is weak support in our data for the diversification motive once we control for the informational friction we broaden the scope of our results by presenting some evidence linking the results on equity transactions to equity holdings

the demand for international reserves and exchange rate adjustments thecase of ldcs 1964 1972 in this paper the relationship between the demand for international reserves and exchange rate adjustments is empirically investigated for agroup of ldc s it is shown that countries that have maintained a fixed exchange rate for a long period of time have a different demand function than countries that have occasionally used exchange rate adjustments for correcting payments imbalances the dynamics of the adjustment for both groupsof countries are also analyzed the results show that while both groups tend to eliminate reserve disequilibria fast those countries that have maintained a fixed rate tend to do it more slowly than countries that have occasionally devalued their currency it is also shown that the year prior to a devaluation international reserves have been on average 30 below their short run desired level these results are important since they indicate that not all ldc s should be aggregated for prediction purposes the results also have implications for the analysis of the adequacy of international reserves in less developed countries this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract wa this abstract was borrowed from another version of this item

academic freedom private sector focus and the process of innovation we develop a model that clarifies the respective advantages and disadvantages of academic and private sector research rather than relying on lack of appropriability or spillovers to generate a rationale for academic research we emphasize control rights considerations and argue that the fundamental tradeoff between academia and the private sector is one of creative control versus focus by serving as a precommitment mechanism that allows scientists to freely pursue their own interests academia can be indispensable for early stage research at the same time the private sector s ability to direct scientists toward higher payoff activities makes it more attractive for later stage research

freedom of speech vs efficient regulation in markets for ideas abstract this paper seeks to explain the broad pattern of regulation repression of information in markets for ideas we consider four examples of ideas markets commercial advertising the courts considered as a market for truth scientific ideas and political speech since buyers cannot easily distinguish good from bad ideas these markets are prone to adverse selection so there is a case for repression in order to help these markets function a number of devices serve the regulatory function of screening bad ideas out of the markets considered advertising codes judicial codes scientific paradigms and constitutional restrictions on free speech however repression carries costs in that the set of regulations in any ideas market is itself an enforced monopoly this framework is used to explain a number of apparent anomalies in the actual regulation of different ideas markets it also yields a logical defence of freedom of speech in politics

does deposit insurance increase banking system stability an empirical investigation based on evidence of 61 countries in 1980 97 the authors find that explicit deposit insurance tends to be detrimental to bank stability the more so where bank interest rates are deregulated and the institutional environment is weak the adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors and where the scheme is funded and run by the government rather than the private sector

effects of exchange rate flexibility on the demand for international reserves abstract we incorporate a measure of exchange rate flexibility into the standard reserve demand equation and present empirical results for the 1976 1985 period which are consistent with the work of officer 1976 and frenkel and jovanovic 1981 indicating the existence of economies of scale and the demand for reserves

austria s demand for international reserves and monetary disequilibrium the case of a small open economy with a fixed exchange rate regime using a vector error correction approach i estimate austria s demand for international reserves over the period 1985 1 1997 4 and test for short run effects of the disequilibrium on the national monetary market i find that austria s long run reserve demand can be described as a stable function of imports uncertainty and the opportunity cost of holding reserves with strong economies of scale the speed of adjustment takes a value of 38 per cent the results confirm that an excess of money demand supply induces an inflow outflow of international reserves as postulated by the monetary approach to the balance of payments

a note on the optimal rate of growth of international reserves the current reform of the international monetary system rests on the conception that the nominal quantity of external reserves taken in the aggregate must provide the flexible element in the adjustment between the supply of and the demand for real international liquidity carried to its logical conclusion this principle implies the adoption of a passive money system in the international sphere the nominal quantity of money ceases to be an exogenous datum to which prices and wages must conform and becomes a dependent variable having an equilibrium level 1 the new reserve assets are destined to satisfy the long run needs for reserve growth 2 yet as is well known the evaluation of such needs presents appreciable difficulties in itself this estimation problem is not new it was explicitly discussed in the report of the gold delegation appointed in 1929 to examine the trends in the gold demand and supply the method used by the delegation is worth recalling it is based upon the double assumption that 1 the monetary demand for gold is proportional to the quantity of money and 2 the demand for money is proportional to the aggregate value of transactions the second part of this hypothesis reflects obviously the quantity theory in its classical form the first part expresses instead an institutional situation in those years the countries under the gold standard used to maintain by virtue of law or of convention a margin of gold cover against the total amount of notes and of central bank sight liabilities the combination of the two ratios led the delegation to estimate the need for gold reserves as a fixed proportion of the total value of transactions

job matching with finite horizon and risk aversion the consequences of introducing risk averse workers with a known finite retirement age into a simple job matching framework are explored the job matching model includes two jobs in the primary job workers and firms learn about the worker s productivity by observing his output over time in the secondary job productivity of any worker is known with certainty at the outset workers start off in the primary job but based on their observed performance may choose to switch to the secondary job the model is developed in two stages first the finite retirement age is introduced while the usual assumption of risk neutral workers is retained in this model it is shown that all workers who achieve at least a certain cumulative output record denoted r by a certain age denoted t will thereafter remain in the primary job until retirement those who do not achieve r by age t switch to the secondary job at or before age t and remain there second risk aversion is introduced along with finite retireme

phd job market professional trajectories and incentives during the phd abstract it is becoming more and more difficult for phd graduates to find a job corresponding to their qualifications stephan and levin have shown that this situation weakens the implicit contract between phd students or post doc and the research team in which they are doing their research this weakness of the implicit contract may slow down scientific production because of the lack of incentives for good students to participate in academic science production the aim of this paper is to examine incentives for students to invest in a phd and for phd supervisors to hire phd students after a theoretical analysis hypotheses are made these are tested by means of a survey on 400 engineering science phd students from the university of grenoble a medium sized town in france with a large academic community do students with a master s degree have relevant information about the scientific community and scientific rules to enable them to choose the best place to complete their phd what are the main factors determining their choice are trajectories flexible to what extent is their research affected by these variables in research do private firms and academia have the same criteria when it comes to recruiting phd graduates the analysis shows that trajectories are not flexible and that phd graduates have to choose a trajectory when their level of information is at its lowest when they choose their first job after completing their phd the cost of switching from academia to the private sector or vice versa depends on whether or not they collaborated with the private sector during their phd and on the intensity of publication the existence of two sectors of recruitment with two sets of criteria to evaluate applicants abilities can affect the implicit contract between phd graduates and phd supervisors and the dynamics of scientific production

incentives in academics why is there tenure this paper models ancademic department as an internal labor market the major problem facing the university administration is to ensure that members of its departments are willing to hire the best possible candidates academic tenure is seen to be a necessary condition for this the analysis is also consistent with other aspects of the academic environment including tenure track appointments contract buy outs early retirement plans and when a budget crunch hits the elimination of entire departments the results extend in a simple way to other organizations in which members have an input into overall decisions

the european union the euro and equity market integration abstract we use industry valuation differentials across european countries to study the impact of membership in the european union as well as the eurozone on both economic and financial integration in integrated markets discount rates and expected growth opportunities should be similar within one industry irrespective of the country implying narrowing valuation differentials as countries become more integrated our analysis of the 1990 2007 period shows that membership in the eu significantly lowered discount rate and expected earnings growth differentials across countries in contrast the adoption of the euro was not associated with increased integration our results do not change when the sample is extended to include the recent crisis period

adverse selection private information and lowballing in insurance markets recent contributions to the adverse selection literature have focused on a multiperiod competitive environment in this setting a clean distinction arises between the predictions of competing models cooper and hayes extend the model of rothschild and stiglitz to multiple periods the result is a self selecting equilibrium characterized by price highballing or systematically overcharging new business kunreuther and pauly suggest that information asymmetries between competing insurance firms render such price quantity policies infeasible their model results in a pooling equilibrium that is characterized by price lowballing or systematically undercharging new business our evidence is consistent with the kunreuther and pauly model and reveals the persistence of adverse selection in the automobile insurance market copyright 1990 by the university of chicago

pay equality and industrial politics personnel managers often argue that equitable pay treatment manifested as wage compression is useful because it reduces disharmony among workers but it is far from obvious that a compressed salary structure is morale improving since better workers may feel disenchanted by this scheme however when workers rewards are based on relative comparisons salary compression reduces uncooperative behavior that is detrimental to the firm relative comparisons imply that some reference group must be selected the major result is that within the relevant groups some wage compression is efficient

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

demand for international reserves survey of recent empirical studies in the last decade many countries have preferred to move to a system of managed floating that is intermediate between the extremes of fixed rates and a clean float since managing the float requires international reserves it is clear that the study of these reserves is as relevant today as it has been in the past there are at least six reviews of the literature relevant to this study clower and lipsey 1968 niehans 1970 salant 1970 grubel 1971 williamson 1973 and cohen 1975 the justification for writing this review is that since completion of the last survey many papers have appeared which contribute to the stock of knowledge in this field however unlike the previous reviews which have concentrated on the broader issues pertaining to international liquidity such as the demand for reserves the supply of reserves the composition and distribution of reserves etc this study focuses solely on surveying empirical studies bearing on the demand for international reserves this review wi

deposit insurance around the world in the past two decades in a series of banking crises around the world banks have become systematically insolvent these crises have occurred in developed and developing economies alike to make such financial system breakdowns less likely and to limit their costs if they occur policymakers feel the need for financial safety nets these include such policies as implicit or explicit deposit insurance a lender of last resort function of the central bank bank insolvency resolution procedures and bank regulation and supervision of these policies explicit deposit insurance has been gaining popularity in recent years since the 1980s the number of countries with explicit deposit insurance schemes almost tripled with most oecd countries and an increasing number of developing economies adopting some form of explicit depositor protection in 1994 deposit insurance became the standard for the newly created single banking market of the european union establishing an explicit deposit insurance scheme became part of the generally accepted best practice advice given to developing economies

uncertainty task environment and organization design an empirical investigation the paper addresses two broad research questions 1 how do internal uncertainty associated with the task environment and external uncertainty arising from market volatility impact organization design 2 what are the relationships among various elements of organization design delegation of decision making incentives monitoring and internal labor market practices promotion training employment security we expand on prendergast 2002a who challenged the conventional view of a tradeoff between risk and incentives and build a single unified framework for answering our two research questions using a uniquely rich dataset that contains detailed information about the task environment of core employees and organization design at the individual group and firms levels in 530 minnesota firms in the mid 1990s we first find support for prendergast s key argument that internal uncertainty over which employees have control affects directly the allocation of decision making and only indirectly incentives via allocation of decision making this confirms similar findings by foss and laursen 2005 devaro and kurtulus 2010 and shi 2011 we also find that internal uncertainty has much impact on organization design through the choice of delegation of decision making at the employee level less so at the group level and very little at the firm level whereas external market uncertainty has little effect on organization design especially at the individual and group level decision making monitoring various internal labor market practices and incentives are strongly related to each other through substitution and complementarity

the square root law uncertainty and international reserves under alternative regimes canadian experience 1950 1976 abstract a transactions precautionary model of demand for international reserves is developed and tested against canadian data the results indicate that i the demand for reserves is characterized by economies of scale with respect to the volume of transactions that are invariant to the exchange rate regime but ii structural change took the form of a relatively larger responsiveness of reserves holdings under fixed rates to a measure of permanent variability in transactions

are international deposits tax driven abstract this paper investigates the impact of tax policy on international depositing non bank international deposits are shown to be positively related to interest income taxes and to the presence of domestic bank interest reporting this suggests that international deposits are in part intended to facilitate tax evasion at present only part of international interest flow are covered by either non resident interest withholding taxes or international exchange of information this incomplete coverage may be a reason that these policies currently appear to have little impact on international depositing

a generalized design for bilateral trade flow models abstract this paper suggests a full interaction effects design to analyze bilateral trade flows this is illustrated with an unbalanced panel of bilateral trade between the triad eu15 usa and japan economies and their 57 most important trading partners over the period 1986 1997 our full interaction model finds empirical support for the new trade theory and linder s hypothesis we show that the omission of one or more interaction effects can result in biased estimates and misleading inference

gravity in international finance abstract the past decade has witnessed an explosion of papers estimating gravity equations for cross border financial holdings without much of a theoretical foundation in this paper we develop a theory for bilateral asset holdings that takes a gravity form we discuss how to estimate international financial frictions and conduct comparative statics analysis within the context of the theory we also find though that reasonable extensions of the model no longer generate a gravity form while this does not significantly complicate estimation and comparative statics analysis it raises questions about the empirical validity of gravity specifications for cross border financial holdings that need to be addressed in future work

profit sharing and the role of professional partnerships when it is hard to assess service quality firms will suboptimally hire low ability workers we show that organizing as a profit sharing partnership can alleviate these problems our theory explains the relative scarcity of partnerships outside of professional service industries such as law accounting medicine investment banking architecture advertising and consulting it also sheds light on features of partnerships such as up or out promotion systems the use of noncompete clauses and recent trends in professional service industries

europe 1992 issues and prospects for the financial markets financial markets vittorio grilli one potential effect of the integration of european financial markets concerns the geographical location of financial hot spots it is likely that liberalization will tend to promote countries with already large and well developed international financial markets attracting the residents of smaller countries these markets will become larger and more liquid and thus even more appealing it is very unlikely that other european countries could design policies apt to threaten london s supremacy as the main european financial centre while the article focuses on the market for bank deposits similar considerations apply to other financial markets it appears that a large part of cross country bank deposits are explained by country specific factors such as particular institutional arrangements in the areas of capital controls tax regulations and secrecy laws however the relative importance of these factors varies between inter bank deposits and non bank deposits taxation and banking secrecy matter for non bank deposits while the very size of the economy influences inter bank deposits finally imperfect competition and switching costs imply that more intense competition wilt be felt primarily in the market for large deposits small deposit contracts will probably be unaffected by liberalization at least in the short run

the geography of trade in goods and asset holdings gravity models have been widely used to describe bilateral trade in goods portes and rey portes r rey h 2005 the determinants of cross border equity flows journal of international economics 65 2 269 296 applied this framework to cross border equity flows and found that distance which proxies information asymmetries is a surprisingly very large barrier to cross border asset trade we adopt a different point of view and explore the complementarity between bilateral trade in goods and bilateral asset holdings in a simultaneous gravity equations framework providing different instruments for both endogenous variables we show that a 10 increase in bilateral trade raises bilateral asset holdings by 6 to 7 the reverse causality is also significant albeit smaller controlling for trade the impact of distance on asset holdings is drastically reduced keywords gravity models international finance international trade simultaneous equations

firm specific human capital amd optimal capital structure the authors consider the moral hazard in managers undersupplying imperfectly marketable firm specific human capital firms may cope by granting long term wage contracts that protect managers against employment termination although ex ante efficient these contracts may be ex post inefficient when managerial ability is discovered to be low precommitted firms must honor these contracts unless there is ownership transfer that permits their legal invalidation bankruptcy is one such transfer mechanism since managers anticipate the contractual consequence of bankruptcy leverage worsens moral hazard this cost provides a counterbalance to the debt tax shield and leads to an optimal capital structure copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimal design of peer review and self assessment schemes a principal must decide whether or not to implement a project that originated with one of her employees several employees have information about the quality of the project a successfully implemented project raises the inventor s chance of promotion at his peer s expense but a failed project ruins the inventor s career an employee who has a relatively good reputation and therefore is happy with the status quo must be encouraged to promote new ideas an employee who has a relatively bad reputation and therefore wants to change the status quo must be prevented from exaggerating the quality of new ideas we study incentive compatible and renegotiation proof mechanisms and we find that self assessment without any peer reports is optimal copyright 2001 by the rand corporation

market discipline by thrift depositors this paper tests for the presence of depositor discipline by examining the effect of depository institutions risk on the pricing and growth of uninsured deposits the study analyzes a large panel of thrifts that includes detailed information on interest rate schedules this information allows the authors to develop a time consistent risk profile for thrifts their empirical findings support the presence of market discipline riskier banks are found to pay higher interest rates but attract smaller amounts of uninsured deposits the authors also find that qualitative results are similar for fully insured deposits although statistical significance is substantially lower

labor economics and the psychology of organizations this essay is a discussion of how economists are attempting to understand institutions within the organizations of the labor market the institutions and issues discussed include mandatory retirement discontinuous jumps in wages pay compression rights of tenure up or out hierarchies timing of raises promotions and evaluations the existence of partnerships the use of bonuses vs penalties and pay as a motivator

tenure issues in higher education the system of tenure that dominates american higher education has long been a source of controversy the institution of tenure has been attacked for entrenching a lazy professoriate more interested in attending faraway conferences and producing unreadable research than in teaching or developing practical insights while on the other hand it has long been defended as an absolute necessity for the defense of open intellectual inquiry the tenure controversy has been sharpened in recent years by several events the end of mandatory retirement which was abolished by federal law effective january 1 1994 has heightened concerns about the productivity and commitment of professors who received tenure long ago and who no longer have the same incentives to invest in long term reputation there is also ongoing concern over the steadily rising cost of higher education which raises the question of what students as well as the taxpayers who support public institutions of higher education are getting for their money 1 the idea that tenure is a wasteful institution for universities runs up against the puzzling fact that the commitment to tenure is one that academic institutions impose on themselves although the american association of university professors aaup provides a powerful lobby in favor of tenure generally colleges and universities most notably private ones are under no legal requirement to observe tenure constraints although as administrators we certainly feel the weight of those constraints our view is that a tenure system in fact provides important benefits to society and to colleges and universities we argue here that the role of tenure is

do economists swing for the fences after tenure using a sample of all academics who pass through top 50 economics and finance departments from 1996 through 2014 we study whether the granting of tenure leads faculty to pursue riskier ideas we use the extreme tails of ex post citations as our measure of risk and find that both the number of publications and the portion consisting of home runs peak at tenure and fall steadily for a decade thereafter similar patterns hold for faculty at elite top 10 institutions and for faculty who take differing time to tenure we find the opposite pattern among poorly cited publications their numbers rise post tenure

fdi versus exports evidence from german banks abstract we use a new bank level dataset to study the fdi versus exports decision for german banks we extend the literature on multinational firms in two directions first we simultaneously study fdi and the export of cross border financial services second we test recent theories on multinational firms which show the importance of firm heterogeneity helpman e melitz m j yeaple s r 2004 export versus fdi american economic review 94 1 300 316 our results show that fdi and cross border services are complements rather than substitutes heterogeneity of banks has a significant impact on the internationalization decision more profitable and larger banks are more likely to expand internationally than smaller banks they have more extensive foreign activities and they are more likely to engage in fdi in addition to cross border financial services

deposit insurance and international bank liabilities abstract this paper examines the responsiveness of external bank liabilities to deposit insurance policies for a sample of developed countries external bank liabilities held by non banks are found to increase after the introduction of explicit deposit insurance deposit insurance schemes tend to exclude interbank deposits from coverage and the response of external interbank liabilities to deposit insurance appears to be varied neither external non bank nor external interbank liabilities are found to be materially affected by deposit insurance design this suggests that international competition in the area of deposit insurance design as possible under the eu deposit insurance directive of 1994 would be fruitless