demand for money in open economies abstract the demand for real cash balances deduced from an underlying portfolio model of the financial market is shown to depend upon domestic variables and foreign monetary developments the model is estimated using quarterly postwar data for canada germany uk and us there is clear evidence that demand for money is affected not only by changes in domestic variables such as permanent income domestic interest rate and price expectations but also by fluctuations in exchange rate expectations and foreign interest rates the conclusion that domestic monetary policy is fairly ineffective and domestic financial markets are highly vulnerable to changes in foreign financial and monetary developments need to be modified in light of the results presented in this paper

more on moral hazard in organizations reply the paper by thomas hammond and gary miller is an insightful comment on the relevance of budget breaking incentive schemes to real world organizations they have made a valuable contribution in considering this line of research within a broader context nonetheless they have not established the invalidity of my theoretical arguments therefore my basic point still holds that is theoretically it is possible to show that a bonus penalty incentive scheme of the sort proposed by holmstrom is feasible despite the principal s incentive to cheat regardless all of this debate may beg the question since compensation arrangements observed in the real world are rarely of the bonus penalty type linear incentives are far more common and many compensation schemes do not appear to incorporate optimal incentives at this point we need more empirical research on the determinants of incentives in organizations in order to make further advances in this area a better understanding of the incentive mechanisms actually used in organizations is required

the entrepreneur s reward for self policing the collaboration among people is often subject to shirking the net gain from the collaboration depends on the contract governing it i argue that the entrepreneur assumes the role of the residual claimant because his actions are more costly to monitor than those of the factors with which he collaborates by offering fixed pay contracts to others and himself becoming residual claimant the entrepreneur curtails his incentive to gain at the expense of his partners and the net gain from the collaboration is then maximized costly monitoring applies to both labor and capital and thus the entrepreneur may supply both labor services and capital the entrepreneur s capital serves to guarantee the pay of the other factors

on some recent explanations of why capital hires labor conventional microeconomics contains no explanation of why capital hires labor and not the reverse in view of some surprisingly positive results in the theoretical analysis of worker run enterprise systems recent contributions to the theory of the firm have attempted to explain the dominance of capitalist production relations in efficiency terms the present paper critically reviews works in this area by alchian and demsetz 1972 williamson 1975 1980 and jensen and meckling 1979 and contends that a convincing efficiency argument for the general superiority of capital owners over workers control of enterprises still is lacking

the function of authority in transaction cost economics abstract this paper questions the transaction cost characterization of observed authority relations as efficient governance structures various inadequacies in the transaction cost account of work organization and the limits of firm size are traced to its neglect of the possibility that authority may be abused opportunistically this exemplifies a more general propensity in the transaction cost literature that of explaining economic organization in functionalist terms with little attention to the causal mechanisms through which efficient governance structures might actually arise three such mechanisms are considered but none is found to provide an adequate rationale for the imputation of efficiency to observed structures

employee ownership and internal governance abstract this paper is designed to counter oliver williamson s hypothetical peer group model of organization with a discussion of three prosperous populations of employee owned firms worked owned scavenger companies taxi cooperatives and professional partnerships such as the large law firm it will be shown here that these firms are formed endure and prevail over their competition for reasons that williamson more than anyone else has taught us to appreciate in particular this paper will argue that the metering problems and human asset considerations that are so prominently featured in williamson s work are crucial for understanding the success of these firms

why capital suppliers usually hire workers what we know and what we need to know abstract a fundamental question for economics is why large firms in market economies usually assign control rights to capital suppliers rather than labor suppliers a diverse collection of answers can be found in the literature but unfortunately little theoretical consensus has emerged and few attempts have been made to resolve this issue through systematic empirical investigation this paper reviews a number of different hypotheses clustering around work incentives the financing of firms and collective choice we identify the strengths and weaknesses of each approach filling in theoretical gaps where necessary and conclude with some suggestions for empirical research

hierarchy vs partnership abstract simple organizations composed of operatives and one manager may be organized as a hierarchy with the manager appropriating all profits or as a partnership with say equal shares of profits conditions on profitability and the optimal span of control are analyzed next partnerships are considered and alternative incentives and distributions are compared when partners are free to choose their time inputs then a sufficiently high preference for leisure as against income will make a partnership more attractive even though it is less profitable

attitudes towards unions and union membership abstract this paper argues that the conventional treatment of the attitudes of workers in union status models is poorly motivated one result is that the model may be incapable of tracking large changes in union membership if these derive from shifts in attitudes

currency substitution and the demand for money some evidence for canada recently the possibility that foreign and domestic currencies are substitutes has received considerable attention see 1 2 3 10 19 21 currency substitution has important implications for the working of flexible exchange rates if the degree of currency substitution is high small changes in the money supply would induce large changes in the exchange rate furthermore currency substitution would transmit the effect of monetary disturbances from one country to another indeed significant currency substitution would seriously undermine the ability of flexible exchange rates to provide monetary independence this paper examines the empirical importance of currency substitution in the framework of the demand function for money if currency substitution is important the expected change in the exchange rate should be a significant determinant of the demand for home currency in section 2 we undertake such a test for the canadian demand for money during the recent flexible exchange rate period there is considerable evidence that the forward exchange rate is a good measure of the expected exchange rate our own tests confirm these results for canadian data since 1970

the life cycle of worker owned firms in market economies a theoretical analysis abstract the population of worker owned firms is likely to grow countercyclically in contrast with capitalist firms many worker owned firms are born during recessions frequently out of capitalist firms and are transformed into capitalist firms during economic booms there exists an offsetting tendency as worker owned firms are formed during periods of sustained increase in the standard of living and are dissolved during economic decline these are some of the conclusions of a theoretical analysis of the obstacles to the formation and relative efficiency attributes of worker owned and capitalist firms carried out in a dynamic framework emphasizing the influence of changes in the environment on organizational life cycles

a modified collective agriculture in rural growth with equity reconsidering the private unimodal solution abstract this paper identifies limitations of an agricultural structure of small private farms as a basis for rural growth with distributive equity and points out potential advantages of democratically managed collectives characterized by flexibility with respect to production scale group checks on inequality in land use and avoidance of the underemployment generating tendencies of large scale non collective agriculture after a critique of recent literature on scale economies and a discussion of stratification tendencies in private agriculture a model of democratic rural collectives incorporating features of chinese and tanzanian precedents is introduced and evaluated political feasibility is considered in a concluding discussion

the effects of foreign exchange risk and return on the demand for domestic balances abstract this paper provides an empirical evidence regarding the effects of foreign exchange risk and return on the demand for domestic balances unlike earlier studies which examine only one effect and thus may have been subjected to a misspecification problem this paper includes both foreign exchange risk and return as explanatory variables in the money demand equation the results lend limited support to the hypothesis that foreign exchange risk negatively affects money demand and strongly indicate that foreign exchange return has a negative effect on the demand for domestic balances thus currency substitution seems to be relevant not just in developed economies but in developing economies subject to foreign exchange controls as well

union wage differentials in the public and private sectors a simultaneous equations specification the paper attempts to integrate new approaches to estimating union wage effects with the analysis of public private sector wage differentials estimates of the union differential in both public and private sectors allowing for the endogeneity of union status are presented the hypothesis that the recently measured rents to public sector employment primarily reflect the recent increase in unionization in that sector is examined and receives considerable empirical support there was evidence of positive selection into the union sector especially for private sector workers union status appears to be strongly influenced by the expected wage gain from joining the union sector

the nature of the agricultural firm abstract models explaining the choice between rent wage and share contracts in agriculture abstract from the large variations within the classes of rent share and owner managed forms of organization regarding the extent to which a specific form accommodates specialization between labor and management as a result modern explanations of agricultural organizations are misleadingly dependent on risk aversion or the assumption that landowners have an absolute advantage in production decisions viewing the agricultural firm as a constitution instead of as a nexus of contracts facilitates an agency explanation of alternative organizational forms and their amenability to specialization

transaction costs and partnerships the case of rock bands abstract this paper applies transaction cost economics to rock bands it develops the importance of asset specificity a number of phenomena in the field are shown to be explicable in terms of transactions costs

some behavioral perspectives on the dominance of hierarchical over democratic forms of enterprise abstract this paper explores possible reasons why participatory modes of organization whole potentially viable and preferable to hierarchical modes for a large majority of workers may be dominated by the latter in capitalist market economies after exploring the developmental preconditions for the evolution of a mature participatory mode using a behavioral approach to organizations it is suggested that since the interest of those possessing scarce managerial skills may lie with hierarchical firms a participatory sector may be uncompetitive unless rights to enter labor contracts are redefined thus the analysis offers a partial explanation of the political nature of the demand for workplace democracy

currency substitution and instability in the world dollar standard comment myron ross correctly points out in his comment that u s price inflation is better predicted by the american money supply mlus than by the broader ten country world money supply mlw over the whole statistical time series from 1960 to 1980 provided in mckinnon s 1982 article specifically he showed that american price inflation is more highly correlated with mlus lagged one or two years than with mlw similarly lagged however mckinnon s present tense assertion that in general growth in the world money supply is a better predictor of american price inflation than is american money growth applies only to the weak dollar standard of the 1970 s and early 1980 s as his preceding discussion intended but failed to indicate clearly only in this later period of volatile exchange rates and price level instability in the united states do alternative hard currencies such as the yen and deutsche mark become competitive as international stores of value and units of account hence international currency substitution associated with the ebb and flow of speculation against or for the dollar significantly destabilized the demand for mlus in the 1970 s and 1980 s and only in this later period might one expect the sum of these internationally substitutable monies ml to predict world and perhaps even american price inflation better than does mlus in contrast during the strong dollar standard of the 1950 s and 1960 s the dollar was unchallenged as international money exchange rates were by and large convincingly fixed speculation for or against the dollar was incapable of substantially altering u s interest rates or of directly affecting the demand for mlus because cyclical international influences did not then destabilize the demand for dollars mlus was by itself a fairly efficient predictor of american prices thus ross s statistical results for the period 1960 to 1980 show somewhat greater predictive strength in mlus compared to ml because the 1960 s data outweigh the dissimilar data of the 1970 s let us instead partition the sample of imf data around the year 1970 whence began the transition from fixed to fluctuating exchange rates and the maturation of alternative monetary systems in europe and japan after applying similar statistical correlation procedures to those used by ross we show a striking structural shift in the world s monetary system the explanatory power of mlw increases sharply as that of mlus declines moderately tan 1982 for the early period of 1960 to 1970 table 1 shows simple correlation coefficients between annual percentage changes in money supplies and changes in american and world wholesale price indices the mlus provides a good explanation of u s prices and of world prices one to two years hence whereas the broader definition of mlw in which mlus enters with a 50 percent weight does surprisingly poorly being insignificantly correlated with american or world prices apparently money growth in industrial countries other than the united states was not then an independent source of worldwide inflationary pressure during the strong dollar standard table 2 shows the same simple correlations between percentage changes in prices and money for the weak dollar standard of stanford university please note that a typographical error giving the last word in the original title as market appeared on the cover of the june 1982 issue of this review the title was correct in the table of contents and on the article

on the incidence of profit and equity sharing theory and an application to the high tech sector abstract profit and equity sharing benefit some firms through improvements in innovation production quality retention of key employees and specific human capital formation the analysis predicts high share contract incidence in the high tech sector a hypothesis supported by survey data collected from small and large high tech firms however externalities associated with this sector s market entry mechanism imply that the optimal level of profit and equity sharing may not have been achieved

is capitalism necessary a critique of the neoclassical economics of organization abstract in recent years neoclassical economists have offered a theory of the capitalist firm which implies that the corporation is uniquely adapted to the complexities of the modern industrial economy hence it is argued capitalism is necessary to efficiency this paper designs a non capitalist firm that satisfies all the criteria for efficiency unumerated by the neoclassical institutional economists the design suggests that by separating capitalism from the capital market advocates of non capitalist market systems need not discard the capital market as an instrument of economic control

competitive interest payments on bank deposits and the long run demand for money reply this paper tests two assumptions made in previous demand for money studies the first assumption concerns the role assigned to the interest rate in the demand for money function common practice identifies the rate of interest with the opportunity cost of holding money in section i this formulation is shown to blur an important distinction between the price of money and the price of money substitutes and to implicitly assume that the relevant price variable is the difference between these two distinct prices a second assumption is that the current ban on interest payments on demand deposits is fully effective in section ii i operationally define these price variables and estimate perfectly competitive interest payments on commercial bank deposits this is done by crudely measuring commercial bank marginal costs and assuming that all excess profit is passed on to depositors in indirect ways section iii presents estimates of a more complete longrun demand for money relationship which explicitly includes an own price and a cross price as separate influences and assumes that the prohibition of the payment of interest on deposits is totally ineffective although no firm conclusion is reached concerning the proper functional specification of the demand function the results significantly improve upon previous demand for money estimates which assumed that the interest payment prohibition is totally effective in section iv the results are summarized and implications of the analysis for monetary theory are presented my competitive demand for money formulation leads to a reinterpretation of the existing evidence on what is generally referred to as the interest elasticity of demand for money this estimate is shown to be significantly biased downward it also implies that the demand for and supply of money are more interdependent than is usually assumed

market socialism a case for rejuvenation in this paper we will outline a feasible economic mechanism of competitive socialism our claim is that competitive markets are necessary to achieve an efficient and vigorous economy but that full scale private ownership is not necessary for the successful operation of competition and markets contrary to popular impression this claim has not yet been disproved by either history or economic theory it is the failure of both the political right and the left to disentangle the concepts of private ownership and the competitive market that has led to the premature obituaries for socialism in the second section we look at the question of the soft budget constraint as an agency problem under market socialism we then propose two variants of a bank centric system of insider monitoring as a viable solution to the agency problem the next section discusses the essential problem of political accountability and the difficulty of credible pre commitment in avoiding the soft budget constraint problem and suggests ways of minimizing this problem in our proposed system we then conclude by addressing some of the other standard objections to a proposal for market socialism