racial discrimination in the labor market theory and empirics we review theories of race discrimination in the labor market taste based models can generate wage and unemployment duration differentials when combined with either random or directed search even when strong prejudice is not widespread but no existing model explains the unemployment rate differential models of statistical discrimination based on differential observability of productivity across races can explain the pattern and magnitudes of wage differentials but do not address employment and unemployment at their current state of development models of statistical discrimination based on rational stereotypes have little empirical content it is plausible that models combining elements of the search models with statistical discrimination could fit the data we suggest possible avenues to be pursued and comment briefly on the implication of existing theory for public policy jel j15 j31 j64 j71

option replication in discrete time with transaction costs option replication is discussed in a discrete time framework with transaction costs the model represents an extension of the cox ross rubinstein binomial option pricing model to cover the case of proportional transaction costs the method proceeds by constructing the appropriate replicating portfolio at each trading interval numerical values of these prices are presented for a range of parameter values the paper derives a simple black scholes type approximation for the option prices with transaction costs and demonstrates numerically that it is quite accurate for plausible parameter values

pride and prejudice using ethnic sounding names and inter ethnic marriages to identify labour market discrimination labour markets discriminate against workers with particular ethnic sounding names we use non random sorting into interethnic marriage and salient differences between sephardic and ashkenazi surnames to evaluate the causal impact of sephardic affiliation on wages using the 1995 israeli census we estimate the effect of a sephardic sounding surname on wages we first compare the wages of israeli jewish males born to sephardic fathers and ashkenazi mothers sa who are more likely to carry a sephardic surname with the wages of israeli jewish males born to ashkenazi fathers and sephardic mothers as we find that israeli labor markets discriminate based on perceived ethnicity sa workers earn significantly less than their as counterparts we then exploit the custom of women to adopt their husbands surnames to disentangle actual ethnicity from the ethnicity perceived by the market consistent with ethnic discrimination based on surnames we find that it is father in law s ethnicity rather than father s ethnicity that shapes female wage rates finally we find that labor markets discriminate based on surname only when those names provide additional information about ethnicity when ethnicity can be discerned from skin tone surnames do not provide additional explanatory power with respect to wages

securities transaction taxes an overview of costs benefits and unresolved questions many major developed countries including germany japan and the united kingdom have some form of tax on securities transactions the clinton administration recently considered imposing fees of from 14 on transactions in futures contracts past budgets have considered fees of from 6 to 15 proponents of a securities transaction tax in the u s argue that it would tap into a significant source of revenues and would in addition act to reduce excess volatility in securities markets by discouraging speculative and noise trading some have argued that it would also increase investors expected holding periods hence encourage corporate managers to build for the long term opponents argue that any benefits from such a tax would be overwhelmed by its costs they point out that a tax on transactions would increase the cost of capital reduce market liquidity and bring down security values furthermore as the tax would change the relative costs of holding and issuing different classes of securities it might be expected to change capital structures and investment portfolios too at its worst a securities transaction tax could drive trading in some securities to overseas markets not burdened by taxation the economic and societal distortions resulting from taxation and avoidance would likely be large

budgetary pressures in the eec a fiscal federalism perspective as is widely known the eec has gone through some troubling budgetary difficulties in recent years disputes have revolved around the growth of agricultural subsidies and about the contributions to be made to the eec by various member countries in particular the u k these problems have been brought under control for the short run however the implementation of the single european act could be greatly complicated and might falter if policymakers again became intensely involved in acrimonious budgetary disputes maintaining budgetary control for the next several years and for that matter in the longer term as well is thus a matter of considerable tactical importance within the context of the overall progress of european economic affairs in view of the fact that the threat of acute budgetary crisis has receded somewhat and in view of the prospect of a significant step forward toward more complete economic integration associated with the 1992 initiative it seems appropriate to give some thought to the budgetary problems that the eec is likely to confront in the medium term at a time of enormous political change in eastern europe it is exceptionally hazardous to attempt projections about economic affairs in the eec it is easy to visualize scenarios in which significant amounts of resources whether from the eec itself or from individual member states are directed toward promoting economic and other reform in the east forcing new choices with respect to the commitment of resources by member countries to the eec however to limit the scope of this paper attention is restricted to developments within the eec itself the major trends in the eec budget are easily delineated since only a few main initiatives account for the bulk of eec expenditures first agricultural subsidies through the european agricultural guidance and guarantee fund eaggf have entailed large expenditures through the 1980s these outlays accounted for about two thirds of eec expenditures another major category of eec expenditures are for the so called structural funds in particular the european regional development fund erdf and the european social fund esf the erdf funds economic development projects in specially targeted low income regions the esf funds programs that promote the training and employment of workers especially youth and long term unemployed persons these and related expenditures have accounted for about 10 15 percent of expenditures during the 1980s altogether then agricultural and structural expenditures account for about 85 percent of the total budget the u k has repeatedly protested against what it regards as excessive contributions to the eec relative to the return that it gets in the form of structural fund outlays and it has garnered a partial rebate of its contributions to the eec equal to two thirds of the difference between the u k vat contribution and eec expenditures allocable to the u k these rebates account for roughly 5 percent of the eec budget as a result of decisions taken in 1988 the outline of the eec budget for the next sevtdiscussants paul courant university of michigan rudolph penner the urban institute john yinger syracuse university

passenger profiling imperfect screening and airport security we present a theoretical model of airport searches the model extends previous work in the area in that detection conditional on search is imperfect the hit rates tests for racial bias developed in knowles persico and todd 2001 is shown to apply even in the presence of imperfections in monitoring we then study two channels for improving airport security better targeting and better detection we show that better targeting does not necessarily decrease the overall crime rate although it will decrease crime in the group that is targeted improved detection rates unambiguously decrease crime group speci c improvements in detection do not necessarily increase the number of searches for those groups the analysis is extended to allow for the possibility that criminal passengers disguise themselves as members of low crime groups

balancing congestion and security in the presence of strategic applicants with private information concerns on security and congestion appear in security screening which is used to identify and deter potential threats e g attackers terrorists smugglers spies among normal applicants wishing to enter an organization location or facility generally in depth screening reduces the risk of being attacked but creates delays that may deter normal applicants and thus decrease the welfare of the approver authority manager screener in this paper we develop a model to determine the optimal screening policy to maximize the reward from admitting normal applicants net of the penalty from admitting bad applicants we use an m m 1 queueing system to capture the impact of security screening policies on system congestion and use game theory to model strategic behavior in which potential applicants with private information can decide whether to apply based on the observed approver s screening policy and the submission behavior of other potential applicants we provide analytical solutions for the optimal non discriminatory screening policy and numerical illustrations for both the discriminatory and non discriminatory policies in addition we discuss more complex scenarios including imperfect screening abandonment behavior of normal applicants and non zero waiting costs of attackers

the welfare effects of intergovernmental grants in an economy with independent jurisdictions abstract a general equilibrium model is presented of an economy where mobile and immobile households engage in decentralized market behavior and where immobile households control the expenditure and tax policy of each local government subject to a local budget constraint it is shown how central government grant policy which is a formula with lump sum matching and population elements affects the general equilibrium of the system determined through market and local political decisions the welfare effects of grants are discussed with particular emphasis on distortions that may arise at lower levels of decision making that grants may be useful in partially or completely correcting

asymmetric tournaments equal opportunity laws and affirmative action some experimental results this paper assesses whether affirmative action programs and equal opportunity laws affect the output of economic agents more precisely we find that equal opportunity laws and affirmative action programs always benefit disadvantaged groups equal opportunity laws also increase the effort levels of all subjects and hence the profits of the tournament administrator usually the firm the effects of affirmative action programs depend on the severity of a group s cost disadvantage when the cost disadvantage is severe these programs significantly increase effort levels and hence profits the opposite is true when the disadvantage is slight

tax transfer policies and the voluntary provision of public goods abstract the purpose of this paper is twofold first it extends previous models of non cooperative private funding of pure public goods by allowing both for distortionary taxation of private goods and for subsidies based on contributions to the public goods second it clarifies the type of behavioral and informational assumptions which are needed to insure neutrality of both lump sum and distortionary policies the analysis is developed in the context of fiscal federalism

affirmative action and labor markets affirmative action remains controversial the controversy extends from the original antidiscrimination legislation and its interpretation to estimates of affirmative action s effect on the labor market this paper provides a progress report on our recent efforts at detecting the effects of affirmative action on minority wages and employment although we find a substantial increase in wages for black men and black women over our sample period the timing of these wage changes is surprising most of the wage gains came prior to 1974 before the establishment of an effective monitoring structure for affirmative action indeed when the powers of the eeoc and ofcc are greatest the wage effects for young blacks are somewhat perverse using eeo 1 reports we find a major shift in black employment toward firms most vulnerable to the monitoring and potential sanctions of the affirmative action programs as with wages the shift in minority employment came prior to the expansion of the powers and budgets of the ee

will affirmative action policies eliminate negative stereotypes a key question concerning affirmative action is whether the labor market gains it brings to minorities can continue without it becoming a permanent fixture in the labor market the authors argue that this depends on how the policy affects employers beliefs about the productivity of minority workers they study the joint determination of employer beliefs and worker productivity in a model of statistical discrimination in job assignments the authors prove that even when identifiable groups are equally endowed ex ante affirmative action can bring about a situation in which employers correctly perceive the groups to be unequally productive ex post copyright 1993 by american economic association

transaction taxes and the behavior of the swedish stock market abstract this paper studies the effects of transaction taxes on the behavior of swedish equity returns during the 1980 1987 period sweden provides an excellent laboratory style setting for such a study as taxes were imposed for political purposes rather than to alter the behavior of the stock market volatility did not decline in response to the introduction of taxes although stock price levels and turnover did large proportions of trading activity migrated overseas to london when the tax rate was increased to 2 in 1986

the impact of the london bombings on the well being of adolescent muslims we exploit the timing of the london bombings coinciding with a large scale national survey of adolescents to identify the impact of extremist islamic terror attacks on the well being of adolescent muslims our analysis reveals interesting gender differences we find evidence of a decline in the happiness of muslim teenage girls after the bombings which is also accompanied by a rise in expectations of facing discrimination in the labour market these findings are robust to several falsification tests on the other hand we fail to uncover compelling evidence of any impact of the bombings on muslim teenage boys

security screening queues with impatient applicants a new model with a case study abstract security screening policies are critical in military contexts airports ports and visa issuance processes in order to minimize risks from terrorists smugglers fugitives and others however such screening procedures also increase congestion and inconvenience for normal applicants which may create a trade off for the authorities balancing between risk and congestion in this paper we develop a game theoretical model to investigate optimal screening policies that acknowledges the trade offs between risk congestion and abandonment behavior of the applicants to calculate the average waiting time in the screening queue with heterogeneous impatient applicants we use a two dimensional markov chain model as a case study we tackle the security screening process of us visa applications by conducting an online survey collected data shows some key aspects of applicant preferences such as abandonment behavior we conduct sensitivity analysis for our model we show that if the authorities take the abandonment behavior of the applicants into account beforehand they may achieve higher utility depending on the characteristics of applicants

the enforcement of equal opportunity laws under imperfect information affirmative action and alternatives more than twenty years have passed since the enactment of the civil rights act during that period the enforcement of title vii with its broad prohibition of discrimination in employment and compensation has proved to be both difficult and controversial as part of any attempt to regulate economic activity we must be able to observe violations but unequal treatment in employment relationships is difficult to identify employers must always differentiate between individuals when making hiring and promotion decisions since applicants possess diverse skills and abilities this diversity creates a fundamental problem in monitoring the compliance or noncompliance of employers with equal opportunity laws this paper examines the enforcement of equal opportunity laws in a labor market that exhibits statistical discrimination this type of discrimination may arise as a rational response by profitmaximizing firms to imperfect information about individual productivity in lundberg and startz 1983 an equal opportunity policy prohibiting raceor sex specific wage schedules was shown to be an efficiency enhancing response to statistical discrimination section ii extends this model to allow information a role in allocating heterogeneous workers among jobs in this environment restricting firms use of information through an equal opportunity policy improves workers incentives to acquire human capital at the expense of production losses and its net effect on efficiency becomes ambiguous firms will attempt to evade an equal opportunity law presenting the government and the courts with the task of monitoring and enforcing compliance the regulators are likely to possess imperfect information not only about the relationship between worker characteristics and productivity but also about the actual personnel policies followed by firms in section iii a simple costminimizing evasion policy for firms in which other worker attributes are used as imperfect proxies for race or sex is outlined in the next two sections alternative policies for enforcing compliance

promotion signaling discrimination and positive discrimination policies this article studies discrimination in a model in which promotions are used as signals of worker ability the model can account for statistical and taste based discrimination in the short run a positive discrimination policy is beneficial for workers in the middle of the ability distribution because these workers are promoted if and only if the policy is in place instead workers of either high or low ability suffer from the policy in the long run the policy benefits all targeted workers the model can explain empirical findings about the effects of a gender quota on the boards of norwegian companies

job discrimination market forces and the invisibility hypothesis the invisibility hypothesis holds that the job skills of disadvantaged workers are not easily discovered by potential new employers but that promotion enhances visibility and alleviates this problem then at a competitive labor market equilibrium firms profit by hiding talented disadvantaged workers in low level jobs consequently those workers are paid less on average and promoted less often than others with the same education and ability as a result of the inefficient and discriminatory wage and promotion policies disadvantaged workers experience lower returns to investments in human capital than other workers

discrimination and job uncertainty abstract in this paper i incorporate group behaviour into a model of the labour market and show that discrimination can be the result of competition between coalitions of workers and bosses for jobs if the probability of correctly assessing the productivity of individual workers decreases coalition formation on the basis of recognisable characteristics becomes relatively more rewarding than coalition forming on the basis of productivity the conditions are under which each individual in the endogeneously defined group actively discriminates persons with different recognisable characteristics independent of productivity

college assignment as a large contest abstract we develop a model of college assignment as a large contest wherein students with heterogeneous learning costs compete for seats at vertically differentiated colleges through the acquisition of productive human capital we use a continuum model to approximate the outcomes of a game with large but finite sets of colleges and students the continuum approximation lends tractability to a rich model for studying investment incentives in rank order competitions by incorporating two common families of affirmative action mechanisms into our model admissions preferences and quotas we can show that legal admissions preference schemes and illegal quotas have the same sets of equilibria including identical outcomes and investment strategies

customer discrimination and affirmative action i introduction beginning with the work of becker 1957 economists have been concerned with the relationship between competitive market forces and the persistence of labor market discrimination 1 a major insight of becker and the literature that followed is that competition could tend to eliminate discriminatory pay differentials if competitive forces do eliminate discrimination then empirical findings of persistent discrimination are either a result of faulty testing or market imperfections economic analysis of the link between competition and discrimination depends on the origins of prejudice becker identified at least three possible sources employers co workers and consumers 2 in each of these instances the group against which prejudice is directed e g women or minorities which will be termed minorities in this paper may be able to escape discrimination first minorities can work for nondiscriminatory employers if there are any moreover stiglitz 1973 shows that with constant returns to scale such employers will take over markets from the discriminators eliminating any pay gap based on prejudice 3 second if there is co worker prejudice then minorities can work in segregated firms which under constant returns to scale may have a cost advantage over integrated or all majority firms again discrimination will be driven away 4 third minorities can theoretically escape customer discrimination by specializing in the production of goods for which there is no contact between producers and consumers a case discussed by cain 1986 while competitive forces may in some cases erode discriminatory wage differentials the rate of decline of race and sex wage differentials has evidently not been rapid enough in the eyes of policymakers u s anti discrimination policy has been guided by two major vehicles title vii of the 1964 civil rights act and the office of federal contract compliance programs ofccp 5 the equal employment opportunity commission eeoc was created to enforce title vii and is empowered to aid plaintiffs or bring suit itself against employers the commission monitors the employment practices of federal contractors not only are contractors barred from discrimination against protected groups these firms are also required to take affirmative action not to discriminate the purpose of this paper is twofold first it demonstrates that in a general equilibrium framework the case of customer discrimination is theoretically distinct from employer or co worker prejudice in particular while constant returns to scale and the existence of nondiscriminatory firms can eliminate the latter two forms of discrimination customer discrimination may persist even under such conditions the persistence of discriminatory wage differentials is shown to depend on consumer demand technology and the relative size of the minority labor force 6 second the general equilibrium framework is then used to evaluate the impact of government anti discrimination policy where customers are the source of discrimination it is shown that if the government requires equal pay and proportional representation for minorities then the resulting allocation of resources will under particular assumptions be the same as if customers did not discriminate i then contrast these theoretical results with the predicted general equilibrium impact of affirmative action when there is employer or co worker prejudice among previous general equilibrium models of affirmative action welch 1976 assumed no discrimination while freeman 1978 did not specify the source of discrimination it is shown here that the source of prejudice markedly affects one s conclusions about affirmative action further even in some cases where segregation has eliminated discriminatory wage differentials the introduction of affirmative action has allocative effects finally evidence from studies evaluating the impact of affirmative action is used to distinguish among the various equilibrium models

study of the effect of a financial transaction tax on the corporate cost of capital abstractwe study the impact of a financial transaction tax ftt or tobin tax on the corporate cost of capital we consider the results on the impact of transaction costs on implied volatility and then use the utility maximization of a market maker and its asymptotic solution the ftt impact on volatility in highly liquid equity option markets is within two decimals the tick value and is insignificant the volatility impact is considerable for illiquid option markets especially long dated equity options used for the hedging of credit default swaps cds the credit spread increase is computed using a structural model and amounts between 30 and 60 basis points b p per annum for 5 20 year maturities and a volatility level of 30 the impact decreases with the corporation leverage ratio we calibrate from the cds market the implied volatility for six european corporations and find an increase in spreads by up to 60 for a corporation with a 343 b p 5 year cds spread the increase amounts to 17

optimal allocation of resources in airport security profiling vs screening this model examines the role of intelligence gathering and screening in providing airport security we analyze this problem using a game between the government and a terrorist by investing in intelligence gathering the government can improve the precision of its information in contrast screening can be used to search a passenger and thereby deter terrorist attacks we determine the optimal allocation of resources between these two strategies wherein we model the role of intelligence using the concept of supermodular precision one striking result is that under certain circumstances an increase in the investment in intelligence can induce a more devious terrorist to attack with a higher probability we also find that when there is a cost reducing innovation in the screening technology then the optimal investment in intelligence gathering can go either way however such an innovation unambiguously improves social welfare another interesting implication is that a developed economy would value intelligence inputs more than a developing economy we also examine the efficacy of a program such as precheck that allows some select passengers expedited screening in exchange for voluntarily revealing information about themselves our analysis shows that such a program can be used to cushion the adverse effect of budgetary shortages finally we also examine the role of enhanced punishment on the optimal level of intelligence we find that the result can go both ways if the initial level of punishment is high then any further enhancement reduces the optimal level of intelligence gathering however this result is reversed if the initial level of punishment is low

a general equilibrium model of statistical discrimination we study a general equilibrium model with endogenous human capital formation in which ex ante identical groups may be treated asymmetrically in equilibrium the interaction between an informational externality and general equilibrium effects creates incentives for groups to specialize discrimination may arise even if the corresponding model with a single group has a unique equilibrium the dominant group gains from discrimination rationalizing why a majority may be reluctant to eliminate discrimination the model is also consistent with reverse discrimination as a remedy against discrimination since it may be necessary to decrease the welfare of the dominant group to achieve parity

hiding in plain sight using signals to detect terrorists this paper studies the interaction between a governmental security agency as the transportation security agency or the immigration and naturalization service and a terrorist organization like al qaeda the governmental agency wants to stop the terrorists but first must infer whether a visa applicant or an airline passenger is a terrorist on the basis of some observable signal the terrorist organization s objective is to get past security to commit murder and mayhem we derive the equilibrium strategy for this signaling model and evaluate specific anti terrorist policies as the creation of the new homeland security agency and increased airport security screening

biased screening and discrimination in the labor market the traditional economic analysis of discrimination is based on gary becker s study of taste discrimination by employers employees and consumers more recent work by kenneth arrow 1972 1973 has attempted to interpret intergroup wage differences in an alternative framework as a rational reaction to uncertainty in labor markets his model of statistical discrimination demonstrates that when the screening process used to determine a worker s qualifications is costly and prior expectations of productivity differ across race or sex groups then wage differentials may arise between workers of identical productivity by implicitly assuming a perfect screening process arrow ignores a potentially important source of wage differentials namely the fact that the screening process might be a more reliable predictor of productivity for one group than for another our paper generalizes the arrow model in two ways first in contrast to arrow we assume that all groups have identical distributions of productivity secondly the screening process used by the firm to determine an applicant s productivity is biased in the sense that a members of various groups may pass the test in different proportions despite their identical productivity distributions and b the predictive power of the test might vary across groups our objective is to analyze the effects of these types of biases in the screening process on the wage differentials between different population groups

gender and job performance evidence from wall street this study concerns the relationship between gender and job performance among brokerage firm equity analysts women s representation in analyst positions dropped from 16 percent in 1995 to 14 percent in 2005 the study found significant gender based differences in performance on various dimensions for example women cover roughly 9 stocks on average as compared with 10 for men and women s earnings estimates tend to be less accurate than men s estimates but the study also found that women are significantly more likely than men to be designated as all stars which indicates that they outperform men in other aspects of job performance

historical evolution and benefit cost explanation of periodical fluctuation in coal mine safety supervision an evolutionary game analysis framework abstract the periodical fluctuation phenomenon appears in coal mine and other fields of government safety supervision the paper provides a theoretical explanation by building an evolutionary game model between coal mine industry and governmental supervision institutions moreover the paper provides a numerical example to demonstrate how the initial state and the costs or gains influence the fluctuation amplitude and the equilibrium position we find that the initial state and the payoffs of different strategies are the two main determinants of periodical fluctuation phenomenon the successful experience of coal mine safety supervision in china shows the importance of highly efficient government safety governance in developing countries

trade credit in zimbabwean manufacturing abstract credit from suppliers is an important but often neglected source of finance for manufacturing firms zimbabwe is no exception unlike credit from financial institutions trade credit does not rely on formal collateral but on trust and reputation contract enforcement is flexible network effects and statistical discrimination affect the screening of trade credit applicants black entrepreneurs are disadvantaged by their lack of business contacts and by the difficulty of distinguishing themselves from the mass of financially insecure and short lived african owned businesses in zimbabwe a vicious circle is created between weak financial base unreliability as a debtor and inability to gain access to credit