behavioral contract theory abstract this review provides a critical survey of psychology and economics behavioral economics research in contract theory first i introduce the theories of individual decision making most

multi tasking and inequity aversion in the linear exponential normal moral hazard model this paper analyzes the impact of wage comparisons among inequity averse agents on optimal incentive intensities in a linear exponential normal moral hazard model with multi tasking we consider individual and team production tasks that differ in that only individual production causes wage inequality if the tasks are substitutes in the agents effort cost functions the principal might want to balance incentives and reduce the agents overall inequality exposure we show that team production incentives can then be muted below the level that results from noisy measurement and risk aversion alone even though team production does not cause wage inequality

the baby booms legacy relative wages in the twenty first century the authors assess the baby boom generations impact on relative wages in the united states in the year 2020 time series data for the period 1955 1984 from the mit penn ssrc data bank are used an econometric model of the demand for workers in eight age sex categories is estimated the simulation results indicate that wages of prime age workers will not deteriorate in relation to older workers as a result of the aging of the baby boom cohort conclusions for teens cannot be drawn the general result does not hold for women however prime age women are predicted to lose in comparison with older workers and with men increasing rather than reducing wage differentials by sex ceteris paribus excerpt

a decomposition analysis of the trend in uk income inequality post war britain has experienced a number of dramatic demographic and social changes that have undoubtedly influenced the distribution of income there has been a rise in the number of pensioners whose incomes are relatively low a considerable increase in the number of young and old households living on their own and a remarkable expansion in the proportion of working wives the potential importance of these structural changes suggests that their impact on the income distribution needs to be examined systematically before any attempt can be made to interpret the observed trend in overall income inequality adequately the method usually adopted for this purpose attempts to create a comparable time series of distributions based on the structural characteristics pertaining in one particular year for example if we wished to investigate the effect of shifts in the age structure of the population this approach would disaggregate the distribution in one year tl and estimate what the distribution would have been like if the age structure had been the same as that observed in some other year to on the assumption that other distributional characteristics such as ageincome differentials and inequality within age groups remain invariant to this demographic change the comparison between the actual distribution at t1 and the constructed distribution at t1 with to s age structure is taken to indicate the impact of changes in the age structure over the period concerned this comparison can be presented in terms of quantile shares summary measures of inequality or the entire lorenz curves this approach known as shift share analysis or standardising the inequality series see semple i975 love and wolfson i976 dinwiddy and reed i977 royal commission i977 rowley and henderson i978 macleod and horner i980 is perfectly adequate for simple and straightforward structural changes when several changes are occurring simultaneously however it becomes difficult to identify the contribution of the individual factors and to assess their relative importance to the overall trend in inequality furthermore the combined impact of several structural influences will not in general sum up to the inequality change requiring explanation the purpose of this paper is to propose an alternative method of analysing

managerial bonuses and subordinate mistreatment abstract can performance bonuses increase the likelihood that managers coerce their subordinates into exerting high levels of effort when doing so promotes neither efficiency nor equity we consider a laboratory setting in which managers compete to obtain a large bonus at the end of the experiment and the probability of obtaining it depends partly on the effort exerted by the subordinates we find that managers are more than twice as likely to punish subordinates exerting fair levels of effort if they compete for individual bonuses than when there are no bonuses this is not the case when they compete for pooled bonuses giving managers discretionary power over how to share them with their subordinates as most subordinates willingly exert maximal effort a model in which individuals are assumed to care about equity captures subordinates behavior well managers willingness to coerce subordinates into exerting unfairly high levels of effort on the other hand cannot be readily accounted for by any of the existing models of social preferences

taxation and excess burden a life cycle perspective a lifetime perspective is appropriate in assessing the welfare implications of government tax policies although a number of attempts have been made to ex amine the excess burden of taxation in life cycle models these have tended to ignore the role of human capital accumulation and or the leisure income choice in this paper we do numerical simulations with a model that takes both of these phenomena into account we find that under reasonable assumptions the failure to take into account distortions of human capital decisions produces substantial underestimates of the excess burden of income taxation in addition allowing for the endogeneity of human capital increases the efficiency of a personal consumption tax relative to that of an equal yield income tax this abstract was borrowed from another version of this item

earnings instability and earnings inequality of males in the united states 1967 1991 although much research has focused on recent increases in annual earnings inequality in the united states the increases could have come from either of two sources the distribution of lifetime earnings could have become more unequal or the receipt of lifetime earnings could have become more unstable based on an analysis of the 1968 92 panel study of income dynamics we find that lifetime earnings inequality increased during the early 1980s and that earnings instability increased during the 1970s we also examine how these trends are related to changes in the distribution of wages and hours and the returns to education

optimal incentive contracts under inequity aversion we analyze the classic moral hazard problem with the additional assumption that agents are inequity averse the presence of inequity aversion alters the structure of optimal contracts when the concern for equity becomes more important there is convergence towards linear sharing rules the sufficient statistics result is violated depending on the environment contracts may be either overdetermined i e include non informative performance measures or incomplete i e neglect informative performance measures finally our model delivers a simple rationale for team based incentives implying wage compression 2010 elsevier inc

the effect of cohort size on earnings growth a reexamination of the evidence this study reexamines the effect of cohort size on earnings growth finis welch finds that individuals in larger cohorts experience depressed earnings conditions on entry into the labor market but that their earnings grow at faster rates than in smaller cohorts thus a large portion of the cohort size effect on earnings dissipates after a few years however using data almost identical to those of welch but estimating less restrictive models it is found here that cohort size not only depresses earnings at entry but also seems to slow down early career earnings growth the evidence suggests that earnings ini larger cohorts do not approach normal levels after at brief period in the labor force rather the negative cohort size effect on earnings appears to worsen with experience

distributive implications of an aging society abstract the paper reviews recent research on the impact of an aging population on the distribution of income after briefly discussing the demographic conditions responsible for population aging a short account is given of demographic trends in the industrialized world in order to disentangle the many potential channels by which an aging society affects the dispersion of income several levels of aggregation are distinguished the paper differentiates between intra and intergenerational issues between direct and indirect demographic inequality effects and between the distribution of current and lifetime income it emphasizes the critical role of age related redistributive tax transfer systems like public pension schemes and health care systems sources of distributional policy conflicts are identified at both the cross section level and the lifetime level of income inequality the institutional design of intergenerational burden sharing individual disincentive reactions shifts in age income profiles related to cohort size and politico economic repercussions are shown to drive the relation between population aging and income distribution in distinct and partially opposite ways

growth rate heterogeneity and the covariance structure of life cycle earnings using u s panel data on adult males i compare the profile heterogeneity model of earnings dynamics in which the earnings experience profile varies across individuals to a competing model in which earnings has a unit root the latter specification enjoys increasing popularity among researchers my analysis questions this favor suggesting the profile heterogeneity model provides a more consistent representation of the data i also provide new estimates of the variation in earnings growth rates previous evidence is from relatively unrepresentative samples individuals one standard deviation above the mean enjoy a 20 30 earnings advantage in just 10 years

can group incentives alleviate moral hazard the role of pro social preferences abstract incentivizing unobservable effort in risky environments such as in insurance credit and labor markets is vital as moral hazard may otherwise cause significant welfare losses including the outright failure of markets ensuring incentive compatibility through state contingent contracts between principal and agent however is undesirable for risk averse agents we provide a theoretical intuition on how pro social preferences between agents in a joint liability group contract can ensure incentive compatibility two independent large scale behavioral experiments framed in an insurance context support the hypotheses derived from our theory in particular effort decreases when making agents payoff less state dependent but this effect is mitigated with joint liability in a group scheme where agents are additionally motivated by pro social concerns activating strategic motives slightly increases effort further particularly in non anonymous groups with high network strength the results support existing evidence on joint liability groups and further suggest that even if peer pressure to ensure effort provision is absent such group policies can improve efficiency when agents are pro social

using repeated choice experiments to evaluate the impact of policy changes on cervical screening australia was one of the first countries to introduce a publicly funded human papilloma virus hpv vaccine program and its introduction coincided with a media campaign to promote regular cervical screening one issue with hpv vaccination is how it impacts on demand for screening this study examines changes in women s screening preferences following these two interventions using a novel approach to policy evaluation based on repeated discrete choice experiments the study extends our previous analysis of attitudes to screening by taking advantage of the timing of the choice experiments to examine the impact of the two policy changes on determinants of screening we find that unexpectedly willingness to screen is generally lower post interventions the reason for this trend appears to be related to hpv vaccination we also find that interventions have minor impacts on how women value screening attributes our approach allows us to examine the impact of provider behaviour a simulation demonstrates tha

measuring attitudes towards inequality individuals attitudes to inequality aversion are measured using survey data based on the leaky bucket experiment for several groups of students in australia and israel three forms of social welfare function are estimated it is found that measures of inequality aversion can be obtained with some precision and that these estimates are substantially lower than the values typically used by those measuring inequality and examining optimal tax structures furthermore a welfare function based on the gini inequality measure is generally found to give a better fit than forms based on constant relative or constant absolute inequality aversion jel classification c91 d63

the social welfare function and individual responsibility some theoretical issues and empirical evidence the literature on income distribution has attempted to evaluate different degrees of inequality using a social welfare function swf approach however it has largely ignored the source of such inequalities and has thus failed to consider different degrees of inequity the literature on egalitarianism has addressed issues of equity largely in relation to individual responsibility this paper builds upon these two literatures and introduces individual responsibility into the swf results from a small scale study of people s preferences in relation to the distribution of health benefits are presented to illustrate how the parameter values of a swf might be determined

understanding preference for egalitarian policies in health are age and sex determinants this article presents an empirical assessment of the relevance of different factors when understanding preferences for outcome egalitarian policies in health in particular respondent age and sex a representative sample of the spanish population was interviewed n 1209 after being informed that those from the higher social class have longer life expectancy at birth than those from the lower social class respondents were required to choose between two programmes to increase life expectancy of the two groups by the same amount the distribution neutral programme and to target the lowest social class group thereby reducing current health inequalities the targeting or egalitarian programme two variants one with and the other without visual aid are used majority 69 of respondents support targeting an effect of age was observed where younger and older individuals are less likely to target the egalitarian policy than those in middle age however individual s sex was not associated wit

on aggregating qalys a comment on dolan dolan dolan p 1998 the measurement of individual utility and social welfare journal of health economics vol 17 pp 39 52 in a recent paper suggested an empirical method for estimating the shape of the social welfare function using a simple theoretical model it is shown that dolan s proposed empirical method has no theoretical foundation the main problem with the approach is that it measures only the altruistic values that individuals attach to other peoples health status and ignores the utility that individuals attach to their own health status

theories of justice and their implications for priority setting in health care abstract the paper aims to show how three theories of distributive justice utilitarianism egalitarianism and maximin can provide a clearer understanding of the normative basis of different priority setting regimes in the health service the paper starts with a brief presentation of the theories followed by their prescriptions for distribution as illustrated with their respective preferred points on a utility possibility frontier after this general discussion attention is shifted from utils to health the paper discusses how the recent norwegian guidelines for priority setting can be understood in the light of the theories

alcohol availability prenatal conditions and long term economic outcomes this study examines how a policy that sharply increased alcohol availability during 8 5 months affected the labor productivity of those exposed to it in utero compared to the surrounding cohorts the prenatally exposed children have substantially worse labor market and educational outcomes and lower cognitive and noncognitive ability effects on earnings are found throughout the distribution but are largest below the median males are more affected than females consistent with growing evidence that boys are less resilient to early environmental insults the long term effects seem primarily driven by changes in prenatal health rather than changes in the childhood environment

trends in intergenerational income mobility previous studies of recent u s trends in intergenerational income mobility have produced widely varying results partly because of large sampling errors by making more efficient use of the available information in the panel study of income dynamics we generate more reliable estimates of the recent time series variation in intergenerational mobility our results which pertain to the cohorts born between 1952 and 1975 do not reveal major changes in intergenerational mobility

biases in standard measures of intergenerational income dependence abstract estimates of the most common mobility measure the intergenerational elasticity can be severely biased if snapshots are used to approximate lifetime income however little is known about biases in other popular dependence measures using long swedish income series we provide such evidence for log linear and rank correlations and rank based transition probabilities attenuation bias is considerably weaker in rank based measures life cycle bias is strongest in the elasticity moderate in log linear correlations and small in rank based measures however there are important exceptions persistence in the tails of the distribution is considerably higher and long distance downward mobility lower than estimates from short run income suggest

demographic change and income distribution this paper examines the interactions between demographic change and income distribution especially in the context of government starting from a simple descriptive life cycle model of individual income this paper established an explicit link between the age composition of a population and the personal distribution of incomes demographic effects on income inequality are derived next 2 income maintenance programs are introduced a redistributive tax transfer scheme and a pay as you go financed state pension system the resulting government budget constraints entail interrelations between fiscal and demographic variables causing an additional indirect demographic impact on the distribution this is shown not only to change but in some cases even to reverse the distributional incidence of demographic trends the superimposition of different age structures on populations of otherwise identical characteristics is non neutral with respect to income distribution disregarding state interventions population aging increases income inequality this result may no longer generally hold if redistribution policies are taken into account the paper provides an example of how indirect demographic effects may lead to a reversal of sign in the absence of any government program a higher ratio of pensioners to active workers raises income inequality in the presence of a redistributive tax transfer scheme and pay as you go financed state pension system a higher dependency ratio decreases income dispersion the restoration of government budget equilibrium induces unintended distributional effects which put the incidence of demographic shifts in a different light varying important aging indicator with realistic forecast bounds leads to inequality fluctuations up to 35 this illustrates the quantitative scale and hence the political importance of demographically caused inequality distortions

bonus pools and the informativeness principle abstract previous work on moral hazard problems has shown that under certain conditions bonus contracts create optimal individual incentives for risk neutral workers in our paper we demonstrate that if a firm employs at least two workers it may further benefit from combining worker compensation via a bonus pool contract and relative performance evaluation such combination leads to saved rents under a wide class of luck distributions in addition if the employer is wealth constrained complementing individual bonus contracts by the possibility of pooling bonuses can increase the set of implementable effort levels all our results hold even though workers outputs are technically and stochastically independent so that in view of holmstrom s informativeness principle individual bonus contracts would be expected to dominate bonus pool contracts

the effects of demographic change on the distribution of wages 1967 1990 a multiple skills model was used to examine the impact of changes in labor force composition on the wage distribution of workers by age sex education and race in the us from 1967 through 1990 the model provided for a higher level of specification than previous studies of wage distribution changes in previous investigations workers were grouped into arbitrary and a priori categories and workers in each category were assumed to be perfectly interchangeable in contrast the multiple skills model assumed that each worker had multiple skills that each skill had a productive value and that each skill was an imperfect substitute for other skills the model further assumed that changes in labor force composition would alter the distribution of skills in the labor force which in turn would produce changes in relative wages analysis revealed that wages of young college educated white and nonwhite males relative to the wages of older college educated white and nonwhite males declined since 1967 and were expected to decline throughout the 1980s in contrast the wages of young high school educated white and nonwhite males relative to the wages of older high school educated white and nonwhite males did not decline since 1967 and were not expected to decline during the 1980s the wages of white females of all ages and of all educational levels relative to the wages of males of all ages and of all educational levels declined throughout the period and were expected to decline in the future nonwhite workers made greater gains in wages since 1967 than white males and this trend was expected to continue through the 1980s however the wages of nonwhite males remained absolutely lower than those of white males by 1985 the wages of nonwhite females were expected to surpass those of white females these findings were similar to those observed in other studies except that other studies failed to detect the differential impact on the wages of high school and college educated males

marital status and earnings of young men a model with endogenous selection it is a matter of course in applied labor economics to presume that marital status is a predetermined contributor to earnings among young males we find no evidence to support that proposition we estimate a model of earnings determination that permits endogenous selection of marital status our estimates are based on a sample of young employed males from the michigan panel survey of income dynamics they indicate that marital status viewed in this manner does not significantly shift the mean earnings profile our sensitivity tests indicate that this conclusion is robust with respect to a variety of alternative specifications excerpt

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

determining the parameters in a social welfare function using stated preference data an application to health one way in which economists might determine how best to balance the competing objectives of efficiency and equity is to specify a social welfare function swf this paper looks at how the stated preferences of a sample of the general public can be used to estimate the shape of the swf in the domain of health benefits the results suggest that it is possible to determine the parameters in a social welfare function from stated preference data but show that people are sensitive to what inequalities exist and to the groups across which those inequalities exist

explaining gift exchange the limits of good intentions this paper explores the limitations of intention based social preferences as an explanation of gift exchange between a firm and a worker in a framework with one self interested and one reciprocal player gift giving never arises in equilibrium instead any equilibrium in a large class of multistage games must involve mutually unkind behavior of both players besides gift exchange this class of games also includes moral hazard models and the rotten kid framework even though equilibrium behavior may appear positively reciprocal in some of these games the self interested player never benefits from reciprocity we discuss the relation of these results to the theoretical and empirical literature on gift exchange in employment relations

schooling as human capital or a signal a new way is proposed to distinguish between the human capital and the signaling theories of the value of education if education is a signal then the essence of the signal should be distilled in the position of an individual in the distribution of education for his cohort estimating earnings equations that include both absolute years and relative percentile measures of education provides a test of the two competing theories analyzing two separate panel data sources under a range of alternative specifications we find that the years measure of schooling has a consistently significant positive effect on earnings but that the rank measure rarely does this evidence supports the conclusion that human capital rather than signaling is the predominant explanation of schooling s value

desert and inequity aversion in teams teams are becoming increasingly important in work settings we develop a framework to study the strategic implications of a meritocratic notion of desert under which team members care about receiving what they feel they deserve team members nd it painful to receive less than their perceived entitlement while receiving more may induce pleasure or pain depending on whether preferences exhibit desert elation or desert guilt our notion of desert generalizes distributional concern models to situations in

piece rate contracts for other regarding workers when workers are paid with piece rates inequality arises naturally we consider workers who care about income comparisons and are either status seeking or inequality averse we identify circumstances under which inequality attitudes lead workers to exert more effort than they would otherwise and also circumstances under which workers inequality attitudes lead firms to set lower piece rates than they would otherwise the key behavioral assumption for both of these results to hold when workers are identical is behindness aversion the property that changes in inequality matter more to the worker when he is behind than when he is ahead jel d01 j33 m52

inequality aversion and externalities abstract we conduct a general analysis of the effects of inequality aversion on decisions by homogeneous players in static and dynamic games we distinguish between direct and indirect effects of inequality aversion direct effects are present when a player changes his action to affect disutility caused by inequality indirect effects occur when the own action is changed to affect other players actions we provide necessary and sufficient conditions for the occurrence of either effect moreover we examine the direction of the effects whereas indirect effects induce players to internalize externalities they impose on others direct effects act in the opposite direction

relative performance or team evaluation optimal contracts for other regarding agents this paper derives optimal incentive contracts for agents with other regarding preferences it offers a behavioral explanation for the empirically observed lack of relative performance evaluation we analyze a principal multi agent model and assume that agents are inequity averse or status seeking we show that team contracts can be optimal even if the agents performance measures are positively correlated such that relative performance evaluation would be optimal with purely self interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other regarding preferences furthermore optimal incentive contracts for other regarding agents can be low powered as compared to contracts for purely self interested agents

on the stability of age earnings profiles age earnings profiles are compared across three countries japan sweden and the united states dynamic changes in period age and cohort characteristics and permanent differences across countries are discussed observed differences in profiles are explained partly by intertemporal country differences in the labor market situation and partly by institutional differences

life cycle variations in the association between current and lifetime income replication and extension for sweden we apply haider and solon s generalized errors in variables model to swedish income tax data to produce estimates of the association between current and lifetime income our estimates demonstrate strong life cycle patterns this implies that the widespread use of current income as a proxy for lifetime income leads to inconsistent parameter estimates i e life cycle bias even when the proxy is used as the dependent variable estimates for comparable cohorts of swedish and american men demonstrate surprising similarities there are however significant gender and cohort differences in this association that lead to statistically significant and quantitatively meaningful differences in life cycle biases

output and wages with inequality averse agents we analyze a two task work environment with risk neutral but inequality averse individuals for the agent employed in task 2 eort is verifiable while in task 1 it is not accordingly agent 1 receives an incentive contract which due to his wealth constraint leads to a rent that the other agent resents we show that greater inequality aversion unambiguously decreases total output and therefore average labor productivity more specifically inequality aversion reduces eort wage

inequality aversion in income health and income related health abstract based on a survey of a sample of the general public we estimate inequality aversion across income health and bivariate income health inequality aversion is domain specific mean inequality aversion is greater for income than for health but the underlying distributions of aversion attitudes differ with a highly bi modal distribution of inequality aversion values for health in which nearly half the participants display very low aversion and nearly half display very high aversion aversion to income related health inequality is greater than that to income or health alone consistent with previous literature we find only weak associations between aversion attitudes and individual characteristics the magnitude of the estimates implies potentially large gains in welfare from reducing inequality in these domains

snapshots versus movies empirical studies of the intergenerational inheritance of economic status should use observations on complete lifetime status profiles of parents and children to be consistent with underlying theory but they cannot only snapshots rather than movies on status are currently available in samples estimates of the degree of intergenerational inheritance may therefore be subject to lifecycle biases the paper investigates these in the context of a lifecycle earnings model and shows that these biases may be large that their direction varies and that correction methods suggested hitherto have questionable reliability until more complete data sets become available researchers should be more temperate in the conclusions they draw

the measurement of preferences over the distribution of benefits the importance of the reference point this paper uses the atkinson method which was initially developed to measure the shape of the social welfare function swf in the domain of income to measure the shape of the swf with respect to the distribution of health benefits two separate studies were conducted involving a total of 71 respondents a comparison of the results across the two studies suggests that reference point effects play an important role in determining responses thus more research is needed on the role that reference point effects ought to and do play in determining the nature and extent of the efficiency equity trade off before the results of studies of this kind can be interpreted as equity parameters which may simply be plugged into an appropriately specified swf

exploring social welfare functions and violation of monotonicity an example from inequalities in health the social welfare function swf has been used within the economics literature to study trade offs between equality and efficiency these swfs are characterised by properties determined by traditional welfare economics one of these properties the monotonicity principle is explored in this paper in the context of health there may be occasions when the monotonicity principle is violated as there may be circumstances where distributional issues dominate efficiency concerns when this is the case conventional swfs are not flexible enough to represent such social preferences therefore we propose a swf with an alternative specification which is general enough to accommodate preferences that are not necessarily monotonic a survey of the spanish general public was undertaken to estimate preferences regarding equality in health relative to efficiency in health the results with 973 usable responses give strong support to the existence of public preferences which violate the monotonicity principle and thus to the usefulness of the alternative specification proposed here

the measurement of individual utility and social welfare it has been suggested by a number of economists that decisions about how to allocate scarce health care resources should be informed by the cost per quality adjusted life years qalys of the different alternatives one of the criticisms of the qaly approach is that it is based on the measurement of individual utility yet the values elicited are used to inform social choice in this respect it is argued that the qaly approach fails to take account of distributional issues that are known to be important in the context of health care this paper addresses this issue and presents an approach grounded in microeconomic theory that is flexible enough to deal with a wide range of efficiency equity trade offs while making the nature of the trade off transparent in addition it is an approach that is relatively simple to investigate empirically and the results of a preliminary study are presented as illustration of this

friends or foes optimal incentives for reciprocal agents abstract widely used performance based contracts put positive or negative externalities on co workers these externalities have been proven to shape an organization s working climate especially when workers exhibit social preferences however it is a priori unclear whether a more friendly or a more competitive working environment should be encouraged in this paper we develop a theoretical model in which a self interested principal has to motivate a set of agents to work hard agents are symmetric potentially risk averse and exhibit reciprocity concerns towards each other we show that the principal reduces the cost of achieving high effort provision by designing a psychological gift exchange game thereby replacing monetary with psychological incentives we find that the optimal incentive scheme depends on the interplay between the agents attitudes towards risks and their preferences for reciprocity in particular the optimal scheme implements i a relative performance compensation scheme which induces an exchange of unkindness if agents are relatively little risk averse and ii a joint performance compensation scheme which induces an exchange of kindness if agents are sufficiently risk averse our findings can explain some puzzling empirical results

the normative economics of health care finance and provision whereas in many countries the crisis in medical care has been seen in terms of excess spending on health services in the uk it has been seen at least by most of those who manage and work in the nhs as a crisis of underfunding this has come about as the result of the government s successful attempts to restrain the rate of growth of real spending on the nhs which in turn reflects the government s belief that its principal effective weapon against what it perceives to be inefficiency in the nhs is to challenge management itself reformed and to some extent liberated by systematic financial squeezes the same concern has given rise to a host of proposals for reform of the nhs most of which involve a much greater role for private insurance private finance of other kinds such as out of pocket payments and private provision of health care itself

changes in life cycle earnings what do social security data show a matched sample of social security and current population survey records is used to examine life cycle earnings patterns of white males over the 1951 1976 period estimated direct effects of schooling and experience compare well with other studies but interaction effects with cohort do not younger cohorts exhibit smaller marginal returns to schooling and larger marginal returns to experience but differences between cohorts are very small when demographic factors namely veteran status are controlled direct cohort effects are linear in these data and show no tendency to vary with cohort size

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

education earnings and the canadian g i bill canadian second world war veterans benefited from an extensive educational pro gram similar to the u s g i bill because of differences in military enlistment rates how ever a much lower fraction of quebec men were eligible for these benefits than men from other provinces building on this fact we analyse inter cohort patterns of education and earnings for english speaking men from ontario using french speaking men from quebec as a control group we find that the instrumental variables estimates of the return to school ing are typically as big or bigger than the corresponding ols estimates jel classification j24 i21

social security unanticipated benefit increases and the timing of retirement between 1969 and 1972 real u s social security retirement benefits rose by 20 the rise was unanticipated and followed over 15 years of relatively constant real benefits this paper proposes a model of retirement behaviour in which workers respond differently although in a theoretically consistent manner to the anticipated and unanticipated components of the social security benefit they can receive upon retirement the retirement age decision in the presence of unanticipated benefit changes is shown to be a special case of utility maximization under a nonlinear budget constraint the model is estimated using the longitudinal retirement history survey between 1969 and 1973 real social security benefits for u s workers with fixed earnings histories were raised by more than 20 these increases were the first significant increases in social security since the early 1950 s at the same time that retirement benefits were rising the trend toward early retirement among older american men accelerated in the period from 1965 to 1970 the labour force participation rate of men aged 55 to 64 fell 1 6 percentage points from 84x6 to 83 0 but in the five years after 1970 the rate fell an additional 7 4 points to 75 6 the participation rate of men over 65 fell by 1 1 points in the five years after 1965 but by 5 2 points during the mid 1970 s 1 not surprisingly a large share of this labour force decline has been attributed to the effects of the social security increases enacted in 1969 and 1972 the purpose of this paper is to determine the precise effect of the unanticipated benefit increases on the timing of retirement the effect of social security on the age at retirement has been the subject of lively debate in recent years the literature has been reviewed in two recent papers by mitchell and fields 1982 and hurd 1983 who reach nearly opposite conclusions about the lessons that can be drawn from past empirical research mitchell and fields find that no definite judgment can be reached about the effects of social security on retirement while hurd argues that more careful studies have all found a significant and meaningful effect of social security on early retirement certainly the earlier studies by boskin 1977 and boskin and hurd 1978 found very large social security effects with boskin concluding that the social security system has been the major factor in the explosion in earlier retirement boskin 1977 p 1 very recent studies by burkhauser and quinn 1983 burtless and moffitt 1984 diamond and hausman 1984 fields and mitchell 1984 and hausman and wise 1985 have found smaller social security effects however none of them dealt explicitly with the rapid rise in real benefits during the early 1970 s the approach taken in this paper differs significantly from that in the earlier research just cited the proposed econometric model takes full account of the nonlinear relationship between goods consumption and the age at retirement introduced by social security