multitask agency and contract choice an empirical exploration the multitask agency problem is examined empirically using contracts between private integrated oil companies and their service stations in the city of vancouver the empirical tests assess how variations in the characteristics of one task affect the choice of agent compensation scheme for another comparative statics from the model predict that higher powered incentives will be offered for gasoline sales when the secondary activity is not highly complementary with gasoline retailing where complementarity is measured by the cross price demand effect the covariation in uncertainty and the degree of effort substitutability copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the role of wages and auditing during a crackdown on corruption in the city of buenos aires abstract we study the prices paid for basic inputs during a crackdown on corruption in the public hospitals of the city of buenos aires argentina during 1996 97 we find a well defined negative effect on the measures used to capture corruption prices paid by hospitals for basic homogeneous inputs decrease by 15 percent during the first 9 months of the crackdown after this period prices increase but they are still 10 percent lower than those prevailing before the crackdown relative to the precrackdown period higher wages play no role in inducing lower input prices when audit intensity can be expected to be maximal during the first phase of the crackdown but have a negative and well defined effect when audit intensity takes intermediate levels the last phase of the crackdown controlling for fixed effects we find that the wage elasticity of input prices exceeds 20 these results are consistent with the standard model of bribes of gary becker and george stigler

understanding corporate coherence theory and evidence abstract multiproduct firms are perceived to be coherent in their scope yet there is no strong theoretical foundations to explain coherence in modern industrial organization theory this paper shows that as u s manufacturing firms grow more diverse they maintain a constant level of coherence between neighboring activities this finding runs counter to the idea that firms with many activities are generally more incoherent a framework is then presented which appeals to the nature of enterprise learning path dependencies and the nature of the selection environment to explain the ubiquity of coherent diversifiers

strikes scabs and tread separations labor strife and the production of defective bridgestone firestone tires this paper provides a case study of the effect of labor relations on product quality we consider whether a long contentious strike and the hiring of permanent replacement workers by bridgestone firestone in the mid 1990s contributed to the production of an excess number of defective tires using several independent data sources we find that labor strife in the decatur plant closely coincided with lower product quality count data regression models based on two data sets of tire failures by plant year and age show significantly higher failure rates for tires produced in decatur during the labor dispute than before or after the dispute or than at other plants also an analysis of internal firestone engineering tests indicates that p235 tires from decatur performed less well if they were manufactured during the labor dispute compared with those produced after the dispute or compared with those from other non striking plants monthly data suggest that the production of defective tires was particularly high around the time wage concessions were demanded by firestone in early 1994 and when large numbers of replacement workers and permanent workers worked side by side in late 1995 and early 1996

the demand for monitoring technologies the case of trucking this paper examines the demand for on board computers in trucking distinguishing between their incentive and resource allocation improving capabilities i find that monitoring s incentive benefits are high when perquisite taking is attractive to drivers driver effort is important and verifying drivers actions to insurers is valuable these results are consistent with agency theory and suggest that networking applications will raise the productivity and pay of difficult toevaluate workers i also find that monitoring s benefits are disproportionately resource allocation related when managerial decisions are least constrained this suggests that networking applications monitoring capabilities raise the returns to delegation when resource allocation decisions are routine and lower them when they are not

reputation and the allocation of ownership we show that allocation of ownership matters even in a long term relationship where problems of opportunism are less severe unless agents are very patient ownership structure is chosen to give the agents best incentives to cooperate the optimal control structure of the static game restricts the gain from deviation to be the lowest but also the punishment will be minimal the worst ownership structure of the one shot game is good in the repeated setting because it provides the highest punishment but bad because the gain from deviation is also highest we show that when investment costs are very elastic partnership and a hostage type solution arise in equilibrium while when costs are moderately elastic the results of the one shot game apply

why do diners tip rule of thumb or valuation of service when diners decide how much to tip is the decision based on social convention or on conscientious appraisal of server productivity previous researchers in economics and social psychology are generally inconclusive on this question a common finding in the literature is that tip size and service quality are unrelated a result usually obtained from ols regressions ols is only appropriate if service quality is exogenous it is argued that service quality is very likely endogenous in any regression of tip size good quality encourages good tips but server expectations of good tips encourage good quality this simultaneity is accounted for by jointly estimating percentage tips and customer rankings of service quality on a sample of 247 diners in a central minnesota restaurant included are explanatory variables consistent with both the social psychology and economic views of tipping in contrast to previous studies it is found that service quality significantly affects tip size and when servers expect hi

the effect of financial liberalization on capital flight in african economies summary in this paper we assess the effects of financial liberalization on capital flight in african economies a portfolio model in which capital flight is one of the assets is estimated on a sample of nine african countries for 1970 91 the estimation results suggest that financial liberalization induces a reduction in capital flight after augmenting the model with submodels for the banking sector the government sector and the external sector we conduct simulation experiments involving an interest rate deregulation a decrease in reserve requirements and a change in exchange rate policy the simulation results show that capital flight is reduced by all the three financial liberalization measures the effects however are very small considering both the estimation and simulation results we conclude that financial liberalization policies are useful in attempts to reduce capital flight in african economies but per se the policies may not be the panacea

the reference point approach to the theory of the firm an introduction there is a small but growing literature on the reference point approach to incomplete contracts as formulated by hart and moore the reference point approach has begun to be applied to the theory of the firm in 3 recent papers this introduction reviews the main theoretical aspects of each of these papers it then discusses the relationship between the reference point approach to the firm the transaction cost approach and the property rights approach here it is argued that the reference point approach is a step back towards ex post inefficiencies away from reliance on ex ante inefficiencies

capital flight under uncertainty about domestic taxation and trade liberalization abstract this paper analyses in a simple general equilibrium framework how uncertainty regarding the future level of domestic taxes on factor incomes and regarding trade liberalization in an economy contemplating tariff reforms affects the overall volume of domestic investment and capital flight it is a variation of the alesina tabellini model alesina a tabellini g 1989 external debt capital flight and political risk journal of international economics 27 and brings out the importance of income effects in addition to substitution effects in determining how the volume of capital flight responds to changes in key policy uncertainty parameters

an economic approach to influence activities in organizations members of organizations spend considerable time effort and ingenuity attempting to influence decision makers such influence activities may bring benefits to the organization but they also involve real costs this essay offers an economic rationale for such influence activity as representing rational self interested behavior in the presence of informational asymmetries and an analysis of how the design of the organization s structure and policies should respond to the incentives for attempting influence it is posited that information valuable for the organization s decision making is directly available only to members of the organization who have some personal stake in the decisions these individuals may then have an incentive to try to manipulate the information they develop and provide in order to influence the resulting decisions to their benefits this can be costly both in degrading the quality of decision making and in diverting the attention and effort of the organization s members from more productive activities the organization has three different methods it can employ to discourage excessive influence activities and to encourage more directly productive uses of time and effort it can limit access to decision makers and participation in decision making it can alter its decision making criteria to favor those performing well in productive activities and it can provide direct financial incentives to encourage the desired allocation of effort it is shown that an efficiently designed organization will use such financial incentives only as a last resort instead it will always first alter its decision participation policies and decisionmaking criteria

markets for ownership the prevailing economic theory of the firm based on a property rights perspective has demonstrated that ownership by dispensable outside parties is an inefficient outcome relative to ownership by productive agents in order to better understand observed patterns of ownership this paper considers the outcome of ma rkets for ownership that operate prior to production taking place the main result is that outside parties will often become the equilibrium asset owners this is precisely because but for ownership such parties would not earn rents in contrast productive agents earn rents even when they do not own assets given that their contribution is complementary with other productive agents their willingness to pay for ownership is less than that of an outside party this result is robust to the introduction of moderate levels of inefficiency arising from outside ownership and to a consideration of opportunities for re sale before production begins the main conclusion drawn is that the nature of the operation of markets for ownership stands alongside incentive effects as important predictors of firm boundaries journal of economic literature classification numbers d23 l22

complementarities momentum and the evolution of modern manufacturing in the nineteenth century the railroad and telegraph were at the center of a set of technological advances physical investments and managerial innovations that transformed american industry alfred chandler 1977 later the automobile and telephone played a similar role in another transformation today the high tech industries include computers telecommunications and electronics working on our remarkably powerful computers even as they rapidly become obsolete co authoring papers by electronic mail and fax and conversing on our portable cellular telephones we are struck by what appears to be a self supporting and reinforcing dynamic to the technological improvements across the electronics industries an advance almost anywhere in the sector seems to call forth more advances across the sector these advances are occurring contemporaneously with a broad pattern of other changes not only in the electronics industries but in manufacturing more generally and not just in hardware but in methods and organization as well a new paradigm has begun to emerge in contrast to traditional manufacturing firms modern firms frequently 1 make greater use of flexible programmable equipment and of computeraided design and manufacturing technologies 2 have fewer job classifications 3 offer more varieties of their major products and or update their product lines more frequently 4 put more emphasis on speed in order processing production and delivery 5 hold much lower inventories of intermediate and finished goods 6 rely on subcontractors to supply a greater proportion of the total value added and 7 overlap design product and process engineering to speed the introduction of new products these features of modern manufacturing firms encompass technology choices marketing strategies personnel policies supplier relations lines of internal communications and other operational policies in a far reaching and coherent pattern whose existence in the words of michael piore 1986 poses a challenge to economic theory in a recent paper milgrom and roberts 1990 proposed a theory to explain the emergence of this new paradigm arguing that the various characteristics and activities described are mutually complementary and so tend to be adopted together with each making the others more attractive in that theory the falling costs of high speed data communication data processing and flexible multitask equipment lead to increases in the directly affected activities which through a web of complementarities then lead to increases in a set of related activities as well although the costs of flexible machinery and data communication and processing surely have fallen substantially in recent decades an analysis that takes these changes as exogenous does not constitute a full explanation of the pattern of change that we observe one must ask why are these particular costs falling relative to others here we enrich the milgrom roberts analysis by adding a dynamic to it innovations in the manufacture of basic inputs both arise in response to a growing market for those inputs and simultaneously encourage that growth this reflects a fundamental complementarity between the level of any activity and investments that reduce its marginal department of economics milgrom and qian and graduate school of business roberts stanford university stanford ca 94305 we thank avner greif for his helpful comments on an earlier draft financial support from the national science foundation milgrom and roberts and the robert and anne bass faculty fellowship roberts is gratefully acknowledged

china s capital flight pre and post crisis experiences abstract we study china s illicit capital flow and document a change in its pattern specifically we observe that china s capital flight especially the one measured by trade misinvoicing exhibits a weakened response in the post 2007 period to the covered interest disparity which is a theoretical determinant of capital flight further analyses indicate that the post 2007 behavior is influenced by quantitative easing and other factors including exchange rate variability capital control policy and trade frictions our study confirms that china s capital flight pattern and its determinants are affected by the crisis event further both the canonical and additional explanatory variables have different effects on different measures of capital flight these results highlight the challenges of managing china s capital flight which requires information on the period and the type of capital flight that the policy authorities would like to target

the pre programme earnings dip and the determinants of participation in a social programme implications for simple programme evaluation strategies the key to estimating the impact of a programme is constructing the counterfactual outcome representing what would have happened in its absence this problem becomes more complicated when agents such as individuals firms or local governments self select into the programme rather than being exogenously assigned to it this paper uses data from a major social experiment to identify what would have happened to the earnings of self selected participants in a job training programme had they not participated in it we investigate the implications of these earnings patterns for the validity of widely used before after and difference in differences estimators

active and passive waste in government spending evidence from a policy experiment we propose a distinction between active and passive waste as determinants of the cost of public services active waste entails utility for the public decision maker whereas passive waste does not we analyze purchases of standardized goods by italian public bodies and exploit a policy experiment associated with a national procurement agency we find that i some public bodies pay systematically more than others for equivalent goods ii differences are correlated with governance structure iii the variation in prices is principally due to variation in passive rather than active waste and iv passive waste accounts for 83 percent of total estimated waste

ethical spillovers in firms evidence from vehicle emissions testing in this paper we explore how organizations influence the unethical behavior of their employees using a unique data set of over three million vehicle emissions tests we find strong evidence of ethical spillovers from firms to individuals when inspectors work across different organizations they adjust the rate at which they pass vehicles to the norms of those with whom they work these spillovers are strongest at large facilities and corporate chains and weakest for the large volume inspectors these results are consistent with the economics literature on productivity spillovers from organizations and peers and suggest that managers can influence the ethics of employee behavior through both formal norms and incentives the results also suggest that employees have persistent ethics that limit the magnitude of this influence these results imply that if ethical conformity is important to the financial and legal health of the organization managers must be vigilant in their hiring training and monitoring to ensure that employee behavior is consistent with firm objectives

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

are emily and greg more employable than lakisha and jamal a field experiment on labor market discrimination we study race in the labor market by sending fictitious resumes to help wanted ads in boston and chicago newspapers to manipulate perceived race resumes are randomly assigned african american or white sounding names white names receive 50 percent more callbacks for interviews callbacks are also more responsive to resume quality for white names than for african american ones the racial gap is uniform across occupation industry and employer size we also find little evidence that employers are inferring social class from the names differential treatment by race still appears to still be prominent in the u s labor market jel j71 j64

the simple economics of extortion evidence from trucking in aceh this paper tests whether the behavior of corrupt officials is consistent with standard industrial organization theory we designed a study in which surveyors accompanied indonesian truck drivers on 304 trips during which they observed over 6 000 illegal payments to police soldiers and weigh station attendants using plausibly exogenous changes in the number of checkpoints we show that market structure affects the level of illegal payments we further show that corrupt officials use complex pricing schemes including third degree price discrimination and a menu of two part tariffs our findings illustrate the importance of considering the market structure for bribes when designing anticorruption policy

integration of the sales force an empirical examination this article develops and tests a model of integration of a marketing function personal selling the model derived from transaction cost analysis as developed principally by williamson is formulated as a logistic function which is estimated with data from the electronic components industry as expected integration is associated with increasing levels of asset specificity difficulty of performance evaluation and the combination of these two factors contrary to the transaction cost model neither frequency of transactions nor interaction of specificity and environmental uncertainty is significantly related to integration the transaction cost model improves significantly upon the fit of a simple model relating integration to company size alone these results suggest that for studying transactions of this kind it is fruitful to view the firm as a governance structure

competition or compensation supplier incentives under the american and japanese subcontracting systems two fundamentally different subcontracting systems arise as distinct solutions to the quality control problem facing an input buyer the american system involves competitive bidding on each contract large orders and inspections the japanese system involves repeat purchases from a supplier who earns a premium small orders and no inspections both systems may coexist as local solutions but the global optimum is determined by the ratio of set up to inspection costs this suggests that the adoption of flexible manufacturing equipment and rising product complexity may be responsible for the shift from the american to the japanese system observed in many industries copyright 1997 by american economic association

paradox lost firm level evidence on the returns to information systems spending the productivity paradox of information systems is is that despite enormous improvements in the underlying technology the benefits of is spending have not been found in aggregate output statistics one explanation is that is spending may lead to increases in product quality or variety which tend to be overlooked in the aggregate statistics even if they increase output at the firm level furthermore the restructuring and cost cutting that are often necessary to realize the potential benefits of is have only recently been undertaken in many firms our study uses new firm level data on several components of is spending for 1987 1991 the dataset includes 367 large firms which generated approximately 1 8 trillion dollars in output in 1991 we supplemented the is data with data on other inputs output and price deflators from other sources as a result we could assess several econometric models of the contribution of is to firm level productivity our results indicate that is spending has made a substantial and statistically significant contribution to firm output we find that the gross marginal product mp for computer capital averaged 81 for the firms in our sample we find that the mp for computer capital is at least as large as the marginal product of other types of capital investment and that dollar for dollar is labor spending generates at least as much output as spending on non is labor and expenses because the models we applied were similar to those that have been previously used to assess the contribution of is and other factors of production we attribute the different results to the fact that our data set is more current and larger than others explored we conclude that the productivity paradox disappeared by 1991 at least in our sample of firms

lying to level the playing field why people may dishonestly help or hurt others to create equity unethical and dishonest behavior has increasingly attracted the attention of scholars from various disciplines recent work has begun to focus on a previous overlooked factor predicting dishonest behavior the beneficiary or victim of dishonest acts in two laboratory experiments we manipulate the level of resources allocated to our participants their wealth and investigate whether perceived inequity from wealth that is randomly or subjectively assigned leads individuals to cross ethical boundaries through helping or hurting others the results show that dishonest behavior is influenced by positive and negative inequity that motivates helping and hurting acts furthermore a third experiment shows that people tend to discount the wrongness of crossing ethical boundaries to hurt or help others when the action restores equity

the effect of information on product quality evidence from restaurant hygiene grade cards this study examines the effect of an increase in product quality information to consumers on e rms choices of product quality in 1998 los angeles county introduced hygiene quality grade cards to be displayed in restaurant windows we show that the grade cards cause i restaurant health inspection scores to increase ii consumer demand to become sensitive to changes in restaurants hygiene quality and iii the number of foodborne illness hospitalizations to decrease we also provide evidence that this improvement in health outcomes is not fully explained by consumers substituting from poor hygiene restaurants to good hygiene restaurants these results imply that the grade cards cause restaurants to make hygiene quality improvements

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 dynamo and the computer an historical perspective on the modern productivity paradox the dynamo and the computer an historical perspective on the modern productivity paradox author s paul a david source the american economic review vol 80 no 2 papers and proceedings of the hundred and second annual meeting of the american economic association may 1990 pp 355 361 published by american economic association stable url http www jstor org stable 2006600 accessed 08 12 2010 01 40

incentives work getting teachers to come to school we use a randomized experiment and a structural model to test whether monitoring and financial incentives can reduce teacher absence and increase learning in india in treatment schools teachers attendance was monitored daily using cameras and their salaries were made a nonlinear function of attendance teacher absenteeism in the treatment group fell by 21 percentage points relative to the control group and the children s test scores increased by 0 17 standard deviations we estimate a structural dynamic labor supply model and find that teachers respond strongly to financial incentives our model is used to compute cost minimizing compensation policies jel i21 j31 j45 o15

salaries and piece rates compensation can take many forms remuneration can come as pecuniary payments as fringes such as health and pension benefits or as a nonpecuniary reward such as plush office furniture that costs the firm less than it benefits the worker a significant literature has examined the trade offs between pecuniary and nonpecuniary compensation the modern work having been pioneered by rosen 1974 more recently another body of literature has examined the selection of method of total compensation ignoring the distinction between pecuniary and nonpecuniary payment this work has focused on risk and incentive factors it has resulted in comparisons of compensation based on absolute output levels to that based on relative performance it has also led to explorations of the relation of compensation to experience over the work life 2 little attention has been paid to what may be among the most important and obvious distinction in methods of compensation namely the choice between a fixed salary for some period of time that is paying on the basis of input and some workers receive compensation that is specified in advance and not directly contingent on performance instead it depends on an input measure such as hours worked for others compensation is directly related to output this essay is an attempt to predict a firm s choice of compensation method piece rates are defined more rigorously among the more important factors discussed are worker heterogeneity incentives sorting considerations monitoring costs and asymmetric information one result is that salary workers tend to be of lower quality and more homogeneous than are their piece rate counterparts numerous additional results are provided helpful comments by victoria lazear and yoram weiss are gratefully acknowledged support was provided by the department of labor and the national science foundation 1 see lazear and rosen 1981 stiglitz 1981 holmstrom 1982 green and stokey 1983 2 see lazear 1979 1981 and harris and holmstrom in press

tax rates and tax evasion evidence from missing imports in china tax evasion by its very nature is difficult to observe we quantify the effects of tax rates on tax evasion by examining the relationship in china between the tariff schedule and the evasion gap which we define as the difference between hong kong s reported exports to china at the product level and china s reported imports from hong kong our results imply that a one percentage point increase in the tax rate is associated with a 3 percent increase in evasion furthermore the evasion gap is negatively correlated with tax rates on closely related products suggesting that evasion takes place partly through misclassification of imports from higher taxed categories to lower taxed ones in addition to underreporting the value of imports

the impact of competition on make or buy decisions evidence from the spanish local tv industry this paper empirically investigates whether changes in product market competition affect firm boundaries exploiting regulation induced shocks to entry barriers and differences in regulation enforcement across cities to obtain exogenous variation in competition we establish a negative causal effect of competition through reduced entry barriers and a larger number of rival firms on vertical integration in the setting of the spanish local television industry between 1995 and 2002 data and the online appendix are available at https doi org 10 1287 mnsc 2016 2633 this paper was accepted by bruno cassiman business strategy

winning isn t everything corruption in sumo wrestling although the theoretical literature on corruption is well developed empirical work in this area has lagged because it has proven difficult to isolate corrupt behavior in the data in this paper we look for evidence of corruption in an unlikely place the highest echelons of japanese sumo wrestling this paper provides strong statistical evidence documenting match rigging in sumo wrestling a non linearity in the incentive structure of promotion leads to gains from trade between wrestlers on the margin for achieving a winning record and their opponents we show that wrestlers win a disproportionate share of the matches when they are on the margin increased effort can not explain the findings winning on the bubble is more frequent when the two competitors have met often in the past success on the bubble tends to rise over the course of a wrestler s career but declines in his last year consistent with the game theoretic predictions wrestlers who are victorious when on the bubble lose more frequently than would be expected the next time they meet that opponent suggesting that part of the payment for throwing a match is future payment in kind systematic differences across wrestling stables suggest that the stables play a role in facilitating the corruption in times of increased media scrutiny the match rigging disappears this abstract was borrowed from another version of this item

retail contracting theory and practice we summarize a number of regularities that arise in the empirical literature on contractual relationships between manufacturers and their exclusive resellers we do this using studies of traditional and business format franchise relationships as well as studies of salesforce integration decisions some of the patterns that we uncover are consistent with a standard incentive cum insurance theory of organization while others are not we brie y review some theoretical extensions that seem promising in terms of reconciling seeming con icts between theory and practice i introduction manufacturers of retail products must decide whether to sell their products to consumers themselves vertical integration or to sell via independent retailers vertical separation when manufacturers do not perform the sales function internally but want exclusive retailers they usually choose some form of franchising 1 many theories attempt to explain the choice of retail organizational form moreover a considerable body of empirical evidence concerning this choice is accumulating we attempt to evaluate this econometric evidence and relate it to the theories to accomplish this task we assess studies of franchising arrangements as well as studies of sales force organization in industrial settings the paper is organized as follows in the next section we highlight a number of regularities that arise in the empirical literature on retail contracting in particular we nd that i risk is positively related to the use of high powered incentives vertical separation ii the importance of the agent s eiort in production is positively related to the use of high powered incentives

the salesperson as outside agent or employee a transaction cost analysis this descriptive study explores the reasons for integration of the personal selling function i e the use of employee direct salespeople rather than manufacturers representatives reps a hypothesized model is developed based on both transaction cost analysis and the sales force management literature data from 13 electronic component manufacturers covering 159 u s sales districts are used to estimate a logistic model of the probability of going direct in a given district results are shown to be stable across specification and estimation methods and to fit the data well the transaction cost model is generally supported the principal finding is that the greater the difficulty of evaluating a salesperson s performance the more likely the firm to substitute surveillance for commission as a control mechanism i e to use a direct sales force among other findings direct sales forces are also associated with complex hard to learn product lines and with districts that demand considerable nonselling activities several factors prove unrelated including company size the amount of travel a district requires and the importance of key accounts this article was originally published in marketing science volume 4 issue 3 pages 234 254 in 1985

organizing knowledge processes in the multinational corporation an introduction this introduction discusses the contrast between on the one hand the current popularity of addressing mnc organization in knowledge terms and on the other the lack of adequate understanding of many of the causal mechanisms and contextual factors in relations between knowledge processes and organizational factors a number of the relevant research challenges are identified and it is clarified how the five articles in this focused issue addresses some of these

point shaving corruption in ncaa basketball a new field of forensic economics has begun to emerge applying price theoretic models to uncover evidence of corruption in domains previously outside the purview of economists by emphasizing the incentives that yield corruption these approaches also provide insight into how to reduce such behavior this paper contributes to this agenda highlighting how the structure of gambling on college basketball yields pay offs to gamblers and players that are both asymmetric and nonlinear thereby encouraging mutually beneficial effort manipulation through point shaving initial evidence suggests that point shaving may be quite widespread the incentives for gambling related corruption derive from the structure of basketball betting to highlight a simple example the university of pennsylvania played harvard on march 5 2005 and was widely expected to win rather than offering short odds on penn winning the game bookmakers offered an almost even bet bet 11 to win 10 on whether penn would win relative to a spread in this example the spread was 14 5 meaning that a bet on penn would win only if penn won the game by 15 or more points while a bet on harvard would be successful if harvard either won or lost by 14 or fewer points the incentive for corruption derives directly from the asymmetric incentives of players who care about winning the game and gamblers who care about whether a team beats or covers the spread indeed the example above is ripe for corruption the outcome that maximizes the joint surplus of the penn players and the gambler occurs when penn wins the game but fails to cover the spread and the gambler has bet on harvard the contract required to induce this outcome simply involves the gambler offering a contingent payment to the player with the contingency being that he pays only if penn fails to cover the spread given the player s approximate indifference over the size of the winning margin even small bribes may dominate his desire to increase the winning margin above 14 points and this in turn yields large profits for the gambler who has bet accordingly the betting market offers a simple technology for the gambler to commit to paying this outcomecontingent bribe he can simply give the player the ticket from a 1 000 bet on his opponent not covering the spread such attempts to shave the winning margin below the point spread are colloquially referred to as point shaving and form the focus of my inquiry i start by outlining the type of corruption that theory suggests will be most prevalent

institutional causes macroeconomic symptoms volatility crises and growth countries that have pursued distortionary macroeconomic policies including high inflation large budget deficits and misaligned exchange rates appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period does this reflect the causal effect of these macroeconomic policies on economic outcomes one reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak institutions including political institutions that do not constrain politicians and political elites ineffective enforcement of property rights for investors widespread corruption and a high degree of political instability this paper documents that countries that inherited more extractive institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period more specifically societies where european colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises based on our previous work we interpret this relationship as due to the causal effect of institutions on economic outcomes europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality once we control for the effect of institutions macroeconomic policies appear to have only a minor impact on volatility and crises this suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic

individual perceptions of the criminal justice system this paper empirically examines belief updating of the perceived probability of arrest and its criminal deterrence effects using two longitudinal data sources while beliefs about the probability of arrest are positively correlated with local official arrest rates they are unresponsive to information acquired from random individuals and local neighborhood conditions importantly perceptions respond to changes in an individual s criminal and arrest history young males who engage in crime without getting arrested revise their perceived probability of arrest downward while those who are arrested revise their probability upward estimates suggest that beliefs about the probability of arrest significantly deter crime jel k42

does asset ownership always motivate managers outside options and the property rights theory of the firm this paper studies the grossman hart moore ghm property rights approach to the theory of the firm under alternating offers bargaining when managers can pursue other occupations while negotiating over the division of the gains from cooperation the ghm results obtain if taking the best alternative job terminates bargaining outcomes are very different sometimes an agent with an important investment decision should not own the assets he works with sometimes independent assets should be owned together sometimes strictly complementary assets should be owned separately

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

panic on the streets of london police crime and the july 2005 terror attacks in this paper we study the causal impact of police on crime by looking at what happened to crime before and after the terror attacks that hit central london in july 2005 the attacks resulted in a large redeployment of police officers to central london boroughs as compared to outer london in fact police deployment in central london increased by over 30 percent in the six weeks following the july 7 bombings during this time crime fell significantly in central relative to outer london study of the timing of the crime reductions and their magnitude the types of crime which were more likely to be affected and a series of robustness tests looking at possible biases all make us confident that our research approach identifies a causal impact of police on crime implementing an instrumental variable approach shows an elasticity of crime with respect to police of approximately 0 3 so that a 10 percent increase in police activity reduces crime by around 3 percent

the revolving door external debt and capital flight a philippine case study abstract in recent decades the private citizens of a number of third world countries accumulated substantial external assets via capital flight at the same time their governments incurred large external debts this paper proposes a classification of hypothetical linkages between capital flight and external debt disbursements and examines the strength of these linkages in the philippines during 1962 86 econometric analysis and anecdotal evidence indicate that large sums of capital flowed into and out of the philippines through a financial revolving door on this basis i conclude that there is scope for political and legal challenges to the legitimacy of a substantial fraction of the country s external debt

public debts and private assets explaining capital flight from sub saharan african countries we investigate the determinants of capital flight from 30 sub saharan african countries including 24 countries classified as severely indebted low income countries for the period 1970 1996 the econometric analysis reveals that external borrowing is positively and significantly related to capital flight suggesting that to a large extent capital flight is debt fueled we estimate that for every dollar of external borrowing in the region roughly 80 cents flowed back as capital flight in the same year capital flight also exhibits a high degree of persistence in the sense that past capital flight is correlated with current and future capital flight the growth rate differential between the african country and its oecd trading partners is negatively related to capital flight we also explore the effects of several other factors inflation fiscal policy indicators the interest rate differential exchange rate appreciation financial development and indicators of the political environment and governance we discuss the implications of the results for debt relief and for policies aimed at preventing capital flight and attracting private capital held abroad

robbing the riches capital flight institutions and debt abstract capital flight undermines economic growth and the effectiveness of debt relief and foreign aid and sometimes drains more resources from poor countries than does debt service in an analysis of a large panel of developing and emerging market countries using annual data for 1970 2001 we show that both institutions and macro policies robustly affect capital flight our study also supports the existence of a revolving door relationship between debt and capital flight more notably we find countries with weak institutions have a greater propensity to accumulate debt because weak institutions spur capital flight which in turn creates a financing need

are internal capital markets efficient using segment information from compustat we find that the investment by a segment of a diversified firm depends on the cash flow of the firm s other segments but significantly less than it depends on its own cash flow the investment by segments of highly diversified firms is less sensitive to their cash flow than the investment of comparable single segment firms the sensitivity of a segment s investment to the cash flow of other segments does not depend on whether its investment opportunities are better than those of the firm s other segments

perspectives on positive political economy this volume serves as an introduction to the field of positive political economy and the economic and political processes with which it is concerned this new research tradition is distinct from both normative and historical approaches to political economy grounded in the rational actor methodology of microeconomics positive political economy is the study of rational decisions in a context of political and economic institutions more analytical than traditional approaches it is concerned with the derivation of principles and propositions against which real world experience may be compared its focus is on empirical regularities and its goal is theoretical explanation the field has focused on three main areas of research models of collective action constraints on competitive market processes and the analysis of transaction costs developments in all of these areas are covered in the book the first part of the volume surveys the field while the second part displays positive political economy at work examining a variety of subjects the final part contains essays by leading political economists on the theoretical foundations of the field

fiscal year ends and nonlinear incentive contracts the effect on business seasonality salesperson and executive compensation contracts typically specify a nonlinear relationship between firm revenues and pay these agents therefore have incentive to manipulate prices influence the timing of customer purchases and vary effort over their firms fiscal years this paper empirically establishes results consistent with agents focusing on performance over the fiscal year most notably in addition to varying with the calendar business cycle manufacturing firms sales are higher at the end of the fiscal year and lower at the beginning than they are in the middle further evidence is found in fiscal year price movements and patterns in the industry variation of fiscal year effects

foreign debt accumulation financial and fiscal effects and monetary policy reactions in developing countries abstract this paper analyzes the effects of the current account of government and government guaranteed foreign debt on the one hand and net foreign liabilities or the cumulated current account deficit on the other hand in a sample of 26 developing countries while the cumulated current account deficit generates stabilizing forces pissibly through financial and wealth effects large amounts of government and government guaranteed debt produce destabilizing effects by stimulating capital flight i also find that monetary policy reactions are stabilizing in the case of the cumulated current account deficit but desstabilizing in the case of a build up of government and government guaranteed foreign debt jel f32 f34

capital flight to germany two alternative measures abstract we use two measures to study two capital flight channels for germany one measure is based on the concept of trade misinvoicing and one on net claims and liabilities in the eurosystem of central banks for both measures we propose refinements to enhance the assessment of capital flight we find that capital flight towards germany via these two channels has been quite sizable in the recent decade and can tally to about 2 of gdp annually regarding their determinants we show that the two capital flight measures are driven by both common and measure specific factors traditional determinants such as covered interest differentials only play a limited role while crisis specific factors such as economic policy uncertainty the ecb collateral policy as well as currency misalignment are driving factors of the investors apparent flight to safety behavior

information technology productivity and asset ownership evidence from taxicab fleets we develop a simple model that links the adoption of a productivity enhancing technology to increased vertical integration and a less skilled workforce we test the model s key prediction using novel microdata on vehicle ownership patterns from the economic census during a period when computerized dispatching systems were first adopted by taxicab firms controlling for time invariant firm specific effects firms increase the proportion of taxicabs under fleet ownership by 12 when they adopt new computerized dispatching systems an instrumental variables analysis suggests that the link between dispatching technology and vertical integration is causal these findings suggest that increasing a firm s productivity can lead to increased vertical integration even in the absence of asset specificity

leveraging upfront payments to curb employee misbehavior evidence from a natural field experiment abstract we use a natural field experiment in which we hired over 2000 workers from an online labor market to explore how upfront payment affects worker motivation and misbehavior on the job we start with a simple theory that shows paying upfront can increase misbehavior through reducing the perceived costs of cheating but it can decrease misbehavior through generating a gift exchange effect motivated by the theory we designed a task that provided workers with opportunities to reciprocate or misbehave a unique aspect of our design is that we are permitted an opportunity to measure the curvature of the gift exchange value of the upfront payment our results suggest paying workers upfront induces a gift exchange effect that is concave in the share of total wage paid upfront moreover the impact is strong enough to suggest that small upfront payments are a cost effective means for an employer to curb employee misbehavior

the timing of mergers along the production chain capital structure and risk dynamics abstract i demonstrate that the timing of vertical mergers is generally dependent on industry characteristics my predictions are consistent with empirically observed patterns of vertical mergers i show that merger activity during economic upturns tends to be motivated by operating efficiencies while merger activity during economic downturns tends to occur as a means of keeping production chain operational mergers allow firms to capture synergies and improve efficiencies in order to survive economic contractions the pricing framework implies that a vertical merger decision usually reduces risk during two different economic states

integrity for hire an analysis of a widespread customs reform abstract can governments improve bureaucratic performance by hiring integrity from the private sector in the past 2 decades a number of developing countries have hired private firms to conduct preshipment inspections of imports generating independent data on the value and tariff classification of incoming shipments i find that countries implementing such inspection programs subsequently experience large increases in import duty collections by contrast the growth rate of other tax revenues does not change appreciably additional evidence suggests that declines in falsification of import documentation are behind the import duty improvements the programs also lead to declines in undervaluation and misreporting of goods classifications historically this hired integrity appears to have been cost effective with improvements in import duty collections in the first 5 years of a typical inspection program amounting to 2 6 times the program s costs

cleaning house the impact of information technology monitoring on employee theft and productivity this paper examines how firm investments in technology based employee monitoring impact both misconduct and productivity we use unique and detailed theft and sales data from 392 restaurant locations from five firms that adopt a theft monitoring information technology it product we use difference in differences models with staggered adoption dates to estimate the treatment effect of it monitoring on theft and productivity we find significant treatment effects in reduced theft and improved productivity that appear to be primarily driven by changed worker behavior rather than worker turnover we examine four mechanisms that may drive this productivity result economic and cognitive multitasking fairness based motivation and perceived increases of general oversight the observed productivity results represent substantial financial benefits to both firms and the legitimate tip based earnings of workers our results suggest that employee misconduct is not solely a function of individual differences in ethics or morality but can also be influenced by managerial policies that can benefit both firms and employees this paper was accepted by serguei netessine operations management

incomplete contracts and the choice between vertical integration and franchising abstract previous studies have demonstrated that geographical dispersion of outlets leads to an incentive for firms to franchise geographical dispersion alone however does not provide a full explanation of the firm s decision to franchise certain industries with highly dispersed retail outlets such as supermarkets almost never franchise this paper uses the incomplete contracting paradigm to demonstrate how the inability to contract over local outlet costs can drive the firm s decision to franchise or integrate since only owners have incentives to reduce cost ownership of the local outlet should rest with the party with the greatest ability to control cost the theory is then applied to several industries