some macroeconomic implications of alternative compensation systems a basic theme of this paper is the idea that some structural reform of employee compensation arrangements is necessary to make reasonable price stability compatible with reasonably full employment in this view even the best designed macroeconomic policies are much too aggregative to get at the heart of the stagflation problem the ultimate solution involves going inside the workings of a modern capitalist economy and correcting the underlying structural flaw directly on the level of the individual firm stagflation represents an especially intractable policy dilemma for macroeconomics without a decisive tendency of the economic system to remain near full employment there is a strong prima facie case for fighting recessions by exogenously stimulating aggregate demand but the usual keynesian expansionary policies tend to impart an inflationary inertia that is difficult to choke off and of course the basic strategy for fighting inflation is to cool down the economy by restrictive monetary and fiscal policy thereby increasing unemployment and closing the viscous circle because the practical macroeconomic policies for dealing with unemployment and inflation are so diametrically opposed stagflation is a pervasive structural problem when for whatever reason there is basically an unfavourable short run tradeoff between unemployment and inflation economic policy tends to vacillate between expansion of demand to fight unemployment and restriction of demand to fight inflation polarising the electorate and distracting society from dealing effectively with its underlying real economic problems even the difficulty of attaining external balance in foreign accounts is largely a spillover into the international payments arena of an inability to achieve an acceptable internal balance between full employment and price stability this paper takes what might be called a comparative systems approach to the problem of stagflation at the heart of modern industrial capitalism is an incredibly complicated system of overlapping monopolistic competitors 2 a starting point for the paper is the realisation that the coordination difficulty which can cause some systems to suffer involuntary unemployment is not inherent in laissez faire private enterprise per se it is closely tied to one particular property of a conventional wage payment system namely compensation of each firm s employees is stuck to an outside numeraire whether money or a cost of

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through

rational mean variance decisions for subsistence farmers this paper explores the issue of approximating expected utility in applying portfolio theory it has been demonstrated that expected utility is very closely approximated by an appropriate quadratic function recent studies have again questioned the empirical validity of mean variance analysis these efforts disregard the importance of the differences among various approximations and historically have focused on domestic financial securities we re examine the problem in the context of determining risk efficient portfolios of production activities for subsistence farmers the risks faced by these farmers are large and probably actuarially nonneutral thus recommendations based on an inappropriate quadratic approximation could result in substantial losses in welfare

tariffs versus ratio quotas under duopoly abstract this paper presents a conjectural variations model of a duopoly to investigate the question of the equivalence of tariffs and ratio quotas it is shown that whether or not tariffs and ratio quotas are equivalent is crucially dependent upon i the particular value of the conjectural variations parameter and ii the target ratio of imports to domestic production in question therefore the monopolistic behavior of the domestic firm over consumers does not necessarily result in non equivalence this paper also demonstrates that the price under a ratio quota is always higher than that under a volume quota

a general mean variance approximation to expected utility for short holding periods the mean variance model is precisely consistent with the expected utility hypothesis only in the special cases of normally distributed security returns or quadratic utility functions there is little evidence however that security returns follow normal distributions see 13 for references and quadratic preferences can be shown to generate implausible results exhibiting increasing absolute risk aversion in the pratt ll arrow 1 2 sense and displaying negative marginal utility after some finite wealth level in addition hakansson 4 has shown that single period mean variance efficient portfolios can have disastrous consequences over time even when return distributions are stationary such criticisms of the mean variance approach within the von neumann morgenstern framework have prompted several writers to suggest that investors maximize the expected value of utility functions with more realistic properties while others have criticized the single period focus of the model one popular alternative utility function is the logarithmic function which exhibits decreasing absolute risk aversion and conveniently leads to myopic decision processes through time i e investors treat each period as if it were the last basing investment decisions on that period s wealth and return distributions only 8 4 other utility functions with constant relative risk aversion such as the power function also imply myopic decision rules within a multiperiod setting

the implications of financial cooperation in israel s semi cooperative villages abstract financial cooperation through credit sharing and co signing of debts was a source of strength for israel s semi cooperative moshavim in the early decades of their development but such cooperation entails a potential free rider problem when farmers borrowings are uncoordinated and recent events in israel have demonstrated the severe implications it can have this paper presents a theoretical analysis of the externalities generated by financial cooperation and tests its conclusions empirically using israeli data simulation results indicate that the potential instability of financial cooperation is aggrevated when the moshav population is heterogeneous

embeddedness cooperation and popular economy firms in the informal sector this paper is motivated by empirical observations on popular economy firms pefs in the informal sector of santiago de chile these are labor managed firms embedded in popular milieu where cooperation between their members plays a central role this paper develops a partial equilibrium microeconomic theory of pefs first it endogeneizes the level of cooperation between the workers second it develops a static and a dynamic model to analyze whether embeddedness influences the behavior of the pef embeddedness is assumed to be captured by three different characteristics suggested by the empirical observations most of them influence the employment and income levels in the pef

tariffs versus quotas in the presence of imperfect competition and cross border externalities we consider trade policies intended to affect the production of a foreign monopolist that generates negative externalities we derive the optimal tariff and optimal import quota and examine which policy measure should be used to maximize domestic welfare we find that if the domestic government does not have full information on the foreign firm s production method and if cross border externalities exist import quotas are in some cases preferable to tariffs otherwise however tariffs are preferable to quotas jel classification f13 f18 droits de douane versus contingentements quand il y a concurrence imparfaite et effets externes trans frontaliers les auteurs examinent les politiques commerciales qui veulent affecter la production d un monopoleur etranger qui engendre des effets externes negatifs on definit le droit de douane optimal et le contingentement optimal des importations et on determine quelle politique devrait etre utilisee pour maximiser le niveau de bien etre au niveau national il appert que si le gouvernement national n a pas une information complete sur les methodes de production de la firme etrangere et si les effets externes traversent les frontieres un contingentement des importations est preferable dans certains cas a des droits de douanes autrement cependant les droits de douane constituent la solution preferable

workers savings and the right to manage most western capitalist institutions are islands of fascism in a sea of democracy but democracy can be introduced from the political to the economic sphere by re assigning the right to manage from capital owners to workers thereby creating a sector consisting of self managed firms such firms require external finance for efficiency this can be supplied via a new form of financial asset performance bonds to be held by wage earners investment funds reforms such as these could improve productivity and the quality of working life strengthen the role of markets and help to deal with the so called pensions crisis these reforms would threaten the interests of private capital owners and would therefore require decisive political action they can thus be differentiated sharply from voluntary enterprise level schemes for introducing profit sharing employee share ownership or industrial democracy

labor managed cooperatives and private firms in north central italy an empirical comparison the authors analyze the differences between the behavior of private firms and that of producer cooperatives in a matched sample of the two organizational types from the regions of emilia romagna and toscana in north central italy where producer cooperatives are numerous individual firm level surveys provide new detailed comparative data on key issues such as investment productivity wages employment and industrial relations differences between the two types of firm are found in labor relations employment pay production methods the relationship to the external market environment and the level of economic performance the authors find no significant differences in investment horizons or criteria for finance despite theoretical assertions to the contrary the cooperatives apparently have higher productivity more labor intensive production methods lower income differentials and a more tranquil industrial relations environment than the private firms

land allocation under uncertainty for alternative specifications of return distributions reply the relevance and usefulness of mean variance portfolio analysis is not a point we wish to question for roughly thirty years this analysis has been a cornerstone of financial and production analysis under risk our goal is to delimit circumstances in which it can be straightforwardly applied and those where some modification may be necessary before addressing tew and reid tr regarding the empirical illustration in collender and zilberman cz we review the cz contribution cz is concerned with resource allocation under uncertainty in the context of nonnormal returns much empirical evidence is available to suggest that agricultural decision makers frequently make decisions under such circumstances literature supporting this view is cited in cz since cz was published buccola has concluded that the chance of encountering approximately gaussian returns in reasonable agricultural situations is small having established the relevance of the problem our contributions a e twofold first we develop a decision making technique that does not impose counterfactual assumptions second we develop a test for the statistical significance of losses in expected utility resulting from the counterfactual imposition of the mean variance framework the first contribution is accomplished through the development of the eumgf approach the approach facilitates decision making consistent with expected utility maximization without imposing normality of returns the relaxation of this assumption is consistent with empirical evidence the second contribution is accomplished by developing a test statistic for differences in expected utility cz and the subsequent article by collender and chalfant illustrate that one can use the eumgf approach to determine if departures from normality are relevant in the decision making process given the risk preferences of the decision maker cz do not contend that departures from normality are always important just that they may be this is more likely true as partial risk aversion increases and or distributions depart further from normality

an alternative test of the capital asset pricing model reply in our 1980 paper we tested the joint hypothesis that prices are determined by the mean variance mv capital asset pricing model capm and that beliefs are stationary by focusing on the invariance law of prices we avoided the questionable practice of estimating ex ante expectations with ex post returns moreover we circumvented the need to identify the true market portfolio and hence avoided the ambiguity noted by richard roll 1977 in the traditional security market line sml tests of the same joint hypothesis however stuart turnbull and ralph winter t w and richard sweeney point to a further inconsistency in the joint hypothesis that they believe can be removed by relaxing the stationarity assumption this new concern is fundamental in that it applies to all empirical tests which assume stationarity of the return distribution whether they are simply tests of the capm or tests employing the capm the concern would apply a fortiori to tests that assume stationary betas as well both comments also suggest that the ad hoc addition of a random error term to our invariance law equation and the subsequent statistical tests of it are unnecessary we first address these two criticisms and then address some further criticisms raised separately by t w and sweeney

equilibrium growth of the hierarchical firm shareholder employee cooperative game approach in recent years an implication of a classic paper by wassily leontief 1946 that is the possible inefficiency of the profit maximization principle within a certain bargaining framework has attracted the attention of economists faced with the increased possibility of such inefficiency due to the emergence of firm specific employment structures in large enterprises explorations into the possible modes of efficient and or equilibrium bargains over wage employment constellations have become a topic of recent research by economists most notably robert hall and david lilien 1979 and ian mcdonald and robert solow 1981 among others this paper investigates a similar and related problem supposing that the firm internalizes its own employment structure organized on the seniority principle is the value maximization rule for investment decision making efficient if it is not can we determine the proper rule for striking a balance between the time preference of the shareholder body and that of the employee body this problem will be dealt with in the framework of the cooperative game model of the firm as developed in my 1980 paper it will be shown that lower investment rationing of new jobs and higher pay rates are the consequences of a shift in the power balance within the firm in favor of the incumbent employees vis a vis the shareholder body this analysis will attempt to provide an integrated micro explanation of a widely observed macro phenomena in the 1970 s that is the negative relationship between the real wage and capital accumulation or between the real wage and employment see for example edmond malinvaud pentti kouri and jeffrey sachs the plan of the paper is as follows section i describes the model of the corporate firm internalizing employment structure hierarchically ordered upon the seniority principle section ii derives the coalitional equilibrium values of the endogenous variables of the model as a cooperative game solution it is shown that in the determination of the equilibrium growth rate of the firm gains from growth of the firm accruable to employees in the form of possible promotions must be taken into account to a degree determined by the power balance between the shareholders and the incumbent employees but under what types of institutional mechanisms can the time preference of employees be incorporated into the corporate policymaking section iii describes three highly stylized institutional models of shareholderemployee manager relationships with a view to their efficiency implications the appendix gives some technical results

endogenous trade policy under foreign direct investment abstract using bernheim and whinston 1986 common agency game we endogenize trade policy in a duopoly composed of a domestic firm and a foreign firm where both firms influence the domestic government s trade policy via their contributions the foreign firm can jump over trade restrictions by undertaking foreign direct investment fdi in the domestic market the government prefers a voluntary export restraint ver to a tariff for two reasons first a ver leads to higher contributions from the foreign firm than a tariff second a ver provides a higher level of protection to the domestic firm without generating fdi by the foreign firm

normality solvency and portfolio choice this paper examines whether investors with power utility functions choose mean vari ance mv efficient portfolios when returns are approximately normally distributed and there is borrowing or lending at a riskless interest rate the results show that the unlevered portfolios of power utility investors plot very closely to the mv efficient frontier how ever there are marked differences in the mix of risky assets regardless of whether the portfolios are highly concentrated or widely diversified such differences allow power investors to remain solvent even when they lever their optimal portfolios to a greater ex tent than less risk averse mv investors who risk bankruptcy it is concluded that the investment policies of power utility and mv investors with similar risk aversion measures are not as similar as is commonly believed this is particularly true for high power inves tors unless explicit solvency constraints are imposed on the mv problem and for low power investors when quadratic utility approximations are made to the power utility func tions these differences in the investment policies of power utility and mv investors lead us to question the widely accepted assertion that the assumptions of homogeneous beliefs normality a riskless asset and risk averse investors imply the simple mv capm where all investors including power utility investors hold combinations ofthe market portfolio and the riskless asset

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

the rationale of the mean standard deviation analysis skewness preference and the demand for money publisher summary this chapter discusses the rationale of the mean standard deviation analysis skewness preference and the demand for money in january 1969 issue of the review of economic studies karl borch and martin feldstein separately criticized the widely used mean variance analysis of portfolio selection borch contended that any system of upward sloping mean standard deviation e s indifference curves can be shown to be inconsistent with the basic axiom of choice under uncertainty he pointed out that one can always pick any two points on an upward sloping indifference curve to represent two bernoulli distributions with probability 1 p of gaining the same amount x in both the cases and probability p of gaining y1 in the case of one distribution and y2 in the case of the second distribution with y2 y1 if the second distribution represents the point to the northeast of the other point then by the dominance axiom the second distribution must be preferred to the first which contradicts the basic meaning of indifference curves feldstein by using a log utility function and a lognormal distribution for investment outcome showed that e s indifference curves for a risk averter need not be convex downwards though upward sloping they would change from convex to concave once the standard deviation of the outcome exceeds the mean multiplied by on the face of it this seems to suggest that risk aversion might decrease as risk is increased beyond a certain extent

tariffs quotas and terms of trade the case of new zealand abstract this paper reports quantitative information on the effects of tariffs and quotas on prices of individual goods the analyses uses the natural experiment provided by a comprehensive unilateral trade policy reform in new zealand to examine the response of foreign exporters to an incident of liberalisation that is unique in the developed world the price effects of tariffs and quotas are estimated using a multidestination 7 digit longitudinal product level dataset on export values and quantities the effects are found to be by no means equivalent whereas tariffs display no significant effect the impact that quantitative restrictions have on the terms of trade of the country that imposes them are unequivocally detrimental and quantitatively important

structural adjustment policies and productive efficiency of socialist enterprises abstract the paper uses panel data from a five percent stratified random sample of yugoslav industrial enterprises to test several hypotheses about the determinants of productive efficiency the estimating procedure selects the production function best supported by the data and allows for industry specific production function parameters as well as from firm specific fixed or random effects the instrumental variable estimates suggest that productive efficiency is unaffected by the four structural policy variables whose effect we examine the extent of export orientation joint venture status divisionalization of the firm and the firm s market share

membership and employment in an egalitarian cooperative economic models of the labour managed firm often stress inefficiencies and perverse behaviour in his seminal work ward 1958 considers a firm in which dividend not profit is maximized dividend is defined as value added net of fixed costs divided by the number of workers for the short run problem with the capital stock fixed ward shows that the usual demand signals would induce perverse responses i e contraction expansion when demand increases decreases workers will not move between firms to equate marginal products of labour and the dividend maximizing firm will respond to an increase in fixed cost by increasing the number of workers these results are disconcerting in that they cast doubt on product market stability due to downward sloping supply curves on the achievement of an efficient allocation of resources and on the formulation of consistent policy prescriptions in a labour managed economy ward s fundamental result that dividend maximization leads to a contraction expansion of the number of workers in the firm as output price increases decreases is remarkably robust it has its analogue in the multi product firm domar 1966 it is not eliminated when labour leisure considerations are introduced ireland and law 1981 and it applies to variations in expected price when uncertainty is introduced bonin 1980 however the appropriateness of modelling the producer cooperative as a firm in which the number of workers can be varied freely to maximize dividend has been criticized robinson 1967 and vanek 1969 argue that a true collective would not dismiss some of the brethren in exchange for small increments in the income of the remaining members interestingly this solidarity position can be supported by the individual self interest maximizing behaviour of a representative member bonin 1981

dynamic behavior of a labor managed team an important result in the theory of the labor managed firm is that the firm reduces output when prices go up this issue is considered in a dynamic situation where a firm is defined as a team if the firm wants to grow it has to use existing resources which are used for current production in order to incorporate factors of production into the team it is shown that the long term steady state results remain as before but not the short term impact the labor managed firm will normally increase production when prices go up while the profit maximizing firm will reduce production copyright 1988 by the editors of the scandinavian journal of economics

portfolio turnpike theorems risk aversion and regularly varying utility functions models which incorporate both uncertainty and the dynamic behavior of economic agents are difficult to analyze 2 moreover even when a solution is obtained it can seldom be simply stated and rarely lends itself to straightforward interpretations an example of an appealingly understood result is a turnpike theorem which states that if the planning horizon is distant then the optimal policy can be approximated by a wealth independent policy our paper develops an analogous result in a stochastic intertemporal model of portfolio selection in fact we obtain necessary and some sufficient conditions for a turnpike the problem considered in this essay is that of an investor a von neumannmorgenstern expected utility maximizer who invests for a finite horizon and consumes only his terminal wealth at the beginning of the first period the investor allocates his wealth w among various assets and at the end of the first

efficient contracts with costly adjustment short run employment determination for airline mechanics this paper presents an empirical analysis of firm specific employment and wage outcomes for mechanics in the domestic airlines industry a dynamic contracting model is presented that incorporates both costly employment adjustment and potential gaps between contract wage rates and the opportunity value of workers time the model gives a useful description of the employment output linkage in the data but is less successful in capturing the dynamic relation between employment contract wage rates and wage rates outside the airline industry copyright 1986 by american economic association

tariffication and welfare in a differentiated duopoly converting non tariff barriers such as quotas into tariffs has been referred to as tariffication and is one of the most important outcomes of the uruguay round due to the burgeoning trend of free trade agreements around the world tariffication has also been popular among asian economies by utilising a duopoly model with heterogeneous products this paper compares the efficiency of three tariffication schemes a quota is converted into an import volume equivalent tariff import price equivalent tariff or profit equivalent tariff it is found that tariffication always increases the world welfare no matter which equivalent tariff is adopted by the domestic government this result echoes the spirit of tariffication proposed by the wto and explains why more and more countries are using tariffs instead of nontariff barriers if we further assume that the quota rent equals the tariff revenue the domestic welfare will also increase after tariffication by contrast the domestic firm s profit can be higher or lower after tariffication depending on the tariffication schemes finally the foreign firm is always worse off

on union preferences and labour market models insiders and outsiders this paper constructs a model of trade union behavior in which there is a distinction between insiders and outsiders this is used to examine one of the most troublesome issues in macroeconomic theory namely the extent to which a rise in aggregate demand might generate wage increases rather than growth in employment a generalization of the most widely used union utility function is presented the analysis reveals the conditions under which insiders will agree to let outsiders into employment derives two step wage preferences and proves a new result on wage rigidity copyright 1987 by royal economic society

conservation payments under risk a stochastic dominance approach conservation payments can be used to preserve forest and agroforest systems to explain landowners land use decisions and determine appropriate conservation payments it is necessary to focus on revenue risk marginal conditional stochastic dominance rules are used to derive conditions for determining the conservation payments required to guarantee that the environmentally preferred land use dominates an empirical application to shaded coffee protection in the biologically important choco region of west ecuador shows that conservation payments required for preserving shaded coffee areas are much higher than those calculated under risk neutral assumptions further the extant distribution of land has strong impacts on the required payments

on the employment decision of a labour managed firm the conventional analysis of a variable membership labour co operative assumes that membership can be reduced if required to increase income per head see for example vanek 1970 this implies a highly inequitable treatment of those who are excluded compared with those who remain we prefer instead to consider a decision process suggested by steinherr and thisse 1979 which treats all members ex ante equitably we assume that a co operative first votes on whether to reduce membership or not and then allocates any resulting redundancies randomly in section ii we define a range of conditions in which a cooperative will not vote to reduce membership although contraction would raise income per head for those remaining since voters who face the possibility of exclusion will take this into account in section iii we present the implications of these results for the supply functions of the firm and show that supply depends on initial membership that supply curves may not be reversible and that they may contain discontinuities kinks and backward sloping segments even with a smooth underlying technology a more general conclusion to be drawn is that a satisfactory theory of labour managed firms should rest on an analysis of decision making procedures and not on the imputation of an arbitrary maximand to the firm as a whole

estimation risk in farm planning under uncertainty this paper examines the impact of estimation risk on a decision maker s ability to distinguish between the mean variance characteristics of different farm plans the importance of making such distinctions should be clear risk averse decision makers will want to bear risk only if they can be reasonably confident of commensurate increases in expected return when parameters are unknown statistically testing for differences in their estimated values is appropriate an illustration of such tests using data from hazell suggests considerable resources must be devoted toward data generation if normative statements under uncertainty are to be reliable

tariffs quotas and market structure this paper examines the effects of tariffs and quotas on the pricing pattern of producers in the case of duopoly by a domestic monopolist and a foreign monopolist it is pointed out that tariffs and quotas may induce completely different pricing patterns in the two producers under a quota it is always profitable for the home producer to be a price leader and for the foreign producer to be a follower whereas under a tariff either producer may become a leader it is also proved that whatever leader follower relation is chosen under a tariff a quota always bring about a higher domestic price than the tariff as long as both permit the same amount of imports

a dynamic model of trade union behaviour this paper constructs a dynamic model of trade union behavior in which union membership is endogenous unemployed workers are assumed to leave their union as they seem to in reality and the union must therefore solve an intertemporal optim ization problem the results imply that conventional static models ov erstate the distortions caused by monopoly unionism and that the rece nt empirical mod els of union behavior may be misspecified the paper s analysis can be seen as an attempt to construct a model of the pos t entry closed shop copyright 1987 by the review of economic studies limited

trade restrictions as facilitating practices abstract the effect of quantitative restrictions in oligopolistic markets is shown to depend on whether imports are substitutes or complements for domestic products in the former case they have profound effects even when set at free trade levels because they impede the ability of the foreign firm to compete in the domestic market thereby acting to facilitate collusion and raise prices and profits for this reason tariffs and quotas are fundamentally non equivalent with substitute goods when goods are complements a voluntary export restriction ver at the free trade level has no effect and tariffs and quotas are equivalent

employment determination in enterprises under communism and in transition evidence from central europe the authors present a comparative analysis of employment determination in four transition economies as they moved from central planning to a market economy in the early 1990s they use firm level panel data sets from the czech republic hungary poland and slovakia to estimate dynamic employment equations for the period from immediately before to immediately after the start of transition for the most part firms appear to have been quick to adjust employment to wage levels and there is little evidence of labor hoarding there were important cross country variations in the determinants of employment during the reform process however hungarian and polish firms started the transition already substantially reformed and became even more responsive to market signals as transition proceeded in contrast firms in the czech and slovak republics started in the completely unresponsive mode characteristic of central planning but rapidly caught up with their counterparts in hungary and poland

effect of corporate economic performance on firm level environmental performance in a transition economy this paper analyzes the effect of corporate economic performance as measured by value added on firm level environmental performance in a transition economy in particular it analyzes this economic performance effect using an unbalanced panel of czech firms for the years 1995 1998 it assesses whether successful economic performance begets or undermines good environmental performance this connection seems especially important in transition economies since firms are dramatically restructuring their economic management approaches during transitional periods a majority of the analytical results indicate that successful economic performance undermines good environmental performance possibly indicating that more focused managerial efforts to improve economic outcomes may distract efforts to manage environmental matters better

behavior of participatory firms in yugoslavia lessons for transforming economies this paper develops a multiparty model of enterprise behavior with the management workers and government authorities being the decisionmakers the model captures the behavior of yugoslav enterprises in the 1970s and 1980s enterprises in transitional economies and public sector bargaining in western countries estimating the model on yugoslav firm level data from the 1970s and 1980s indicates that the perverse behavior predicted by the ward domar vanek model of labor managed firms is not supported by the data as firms place emphasis on both wages and employment a direct test shows that the employment response to output price changes is insignificant coauthors are jan svejnar dubravko mihaljek and vesna prasnikar copyright 1994 by mit press

experimentation and optimal output decisions the cooperative versus the entrepreneurial firm this paper studies and contrasts the experimental inclinations of entrepreneurial and cooperative firms supplying a perishable good under uncertain demand when larger stocks might yield additional information about the demand generating process while these firms might react differently and in the case of the cooperative not unambiguously to environmental change neither variant will find the higher output possibly more informative option especially attractive

output work hours and employment in the short run of a labour managed firm in its pure form the organisation of a labour managed firm lmf differs radically from that of a profit maximising firm pmf lmfs are found not only in yugoslavia many forms of producers cooperatives and employee owned firms appear in capitalist economies e g jones and svejnar i982 the theory of the lmf is also relevant to the economics of trade unions profit sharing codetermination and internal labour markets this is because where worker participation exists elements of the economic forces prevalent in an lmf can influence management policies on wages employment and investment it follows that by studying the lmf in relation to the pmf we may be better able to grasp the workings of more realistic firm organisations in which both labour and management vie over the division of firm specific rents from this perspective on the theory of the firm we examine the short run behaviour of the competitive lmf and in particular the tendency for output supply employment demand and work hours to differ from the neoclassical norm traditionally the short run analysis of the lmf has focused on its employment response to output price changes the theorem due to ward i958 and vanek i970 holds that an increase in output price causes paradoxically a reduction in employment and output if the lmf maximises per capita remuneration more recent work in which the lmf maximises the member s expected utility over layoff probabilities and remuneration demonstrates that the lmf s response to a higher output price is essentially to increase both output and employment e g steinherr and thisse i979 bonin i98i and miyazaki and neary i983a the key to this result is that these authors distinguish actual workforce which is variable in the short run from lmf membership size which is variable in the long run but fixed in the short run the precise features of this lmf short run behaviour also depend on the nature of the lmf s bankruptcy constraint which is largely determined by the lmf s access to capital markets in this line of analysis however authors have effectively assumed that work hours are institutionally fixed but variability in work hours or effort intensity can also be an important factor in the lmf s response to output price changes because a change in the lmf s output price immediately affects the member worker s per capita some of the basic results of this paper were originally reported in sections 7 8 of our july 1979 mimeographed paper which was read at the second international conference on the economics of worker s self management istanbul june i980 and also in seminars at berkeley british columbia bell labs cornell hitotsubashi kyoto osaka tokyo and toronto in i979 i980 we thank j bonin and the participants of the above conference and seminars for comments on earlier versions in writing the present version we especially benefited from the comments of anonymous referees p evans and t macurdy we are responsible for any remaining errors omissions and ambiguities a detailed computational appendix for our theorems and examples is available on request

productivity effects of worker participation in management profit sharing worker ownership of assets and unionization in u s firms abstract in this paper we provide our first econometric estimates of the effect of worker participation in decision making ownership and profits on productive efficiency participation has the potential for exerting several conflicting influences on firm performance simultaneously as a result both the direction and magnitude of its impact are empirical issues previous studies have empirically measured the impact of each of these forms of participation however no prior study has controlled for the influence of the other forms because of the potential for correlation among these forms of participation it is possible that omitted variables bias has affected the previous results using a new panel data set with simultaneous measures of all four types of participation in u s manufacturing establishments we model participation as disembodied technical change and estimate production function coefficients for each type while controlling for the others we use both ols and instrumental variables in order to guard against potential simultaneity the iv results indicate that participation in decision making has a large positive productivity effect while the impacts of unionization and profit sharing depend upon regression specification moderate amounts of indirect worker ownership affect productivity positively while the estimated effect of direct worker ownership is negative however this last result may reflect the industrial concentration of the direct ownership firms in our sample

internal bargaining labor contracts and a marshallian theory of the firm the theme of this paper is due to alfred marshall who states that nearly the whole income of a business may be regarded as a composite quasi rent divisible among different persons in the business by bargaining supplemented by custom and by notion of fairness and the division of quasi rents entails de facto some sort of profit loss sharing between almost every business and its employees principles of economics 8th ed book vi ch viii sec 10 pp 520 21 marshall emphasizes that a significant portion of composite quasi rent is derived from the organization of business and would be lost if employer employee connections were dissolved in this view bargaining can even be tacit insofar as there is an organizational basis which ensures agreement among the concerned parties consequently internal bargaining models of the firm may be applicable to the analysis of european style codetermination and japanese style labor management also as the relative bargaining strength between labor and management changes such a view of the firm admits as its extrema the organization of a labor managed firm lmf and the textbook case of a profit maximizing firm pmf masahiko aoki 1980 1982 and jan svejnar 1982 have recently explored models of an internal bargaining firm their analyses however consider the firm s long run behavior only under restricted circumstances without market uncertainty the relevance of the internal bargaining approach to profit sharing and labor management would be enhanced if we integrated the firm s short run wage employment policies with its long run plans for the rate of growth and capital labor substitutions this i do by underscoring the firm s organizational basis which is essentially a long term contractual association between workers and management i combine costas azariadis 1975 and martin baily s 1974 apparatus of labor contracting with efficient bargaining to investigate the effect of varying degrees of labor s bargaining power upon the firm s shortand long run policies under uncertainty these results are then contrasted with the empirical findings of collective bargaining for example richard freeman and james medoff 1981 conventional results of lmf models jaroslav vanek 1970 benjamin ward 1958 and the recent macroeconomic approaches to wage employment adjustments ian mcdonald and robert solow 1981

cooperation harassment and involuntary unemployment an insider outsider approach the authors present a theory of involuntary unemployment which explains why the unemployed workers outsiders are unable or unwilling to find jobs even though they are prepared to work for less than the prevailing wages of incumbent workers in siders the outsiders do not underbid the insiders since were the y to do so the insiders would withdraw cooperation from them making their work unpleasant with harassment and thereby reducing the prod uctivity and increasing the reservation wages of the underbidders th e resulting labor turnover costs create economic rent which the insid ers tap in wage setting and as a result involuntary unemployment ma y arise copyright 1988 by american economic association

import share under international oligopoly with differentiated products japanese imports in u s manufacturing this paper seeks to identify the determinants of the japanese impor t share in the u s market from the assumptions of international oligopoly and internationally differentiated products a theoretical model is developed where import share is considered as a cournot nash equilibrium the relative position of the reaction functions is determined by the previous commitments of both domestic and foreign firms on advertising r d and tangible investment as well as by artificial and natural trade barriers using a sample of twenty four three digit import competing u s industries matched to japanese industries the empirical analysis provides evidence supporting the model s predictions that the relative strategic expenditures and market structures of both partners explain the japanese import share in u s markets copyright 1988 by mit press

land allocation under uncertainty for alternative specifications of return distributions using the expected utility moment generating function approach a land allocation rule is derived which is both independent of the nature of the underlying distribution of each element in the choice set and accounts for all moments of that distribution this decision rule is applied to the choice between cotton and corn in the mississippi delta to demonstrate that consideration of just the first two moments of the distribution can often be unjustified and damaging empirically theoretically and in terms of the utility of the decision maker

tariffs vs quotas under duopoly of heterogeneous goods abstract this paper analyzes a model of duopoly with heterogeneous goods where behavior patterns are endogenously determined by producers it is shown that the source of non equivalence of tariffs and quotas is not the monopolistic behavior of the domestic producer over consumers but a certain kind of his behavior against the foreign producers this result is then extended to the cases of a general nash type oligopoly and monopolistic competition the paper also examines how the behavior patterns of the producers are affected by tariffs and quotas and proves non equivalence of tariffs and quotas in the duopoly situation where the pricing behavior of the producers is endogenously determined by trade policies

intertemporal substitution in labor supply evidence from micro data the sensitivity of the supply of labor to intertemporal variation in the wage is an important issue in macroeconomics the analysis of social security and pensions and the study of life cycle patterns of work this paper explores two approaches to the measurement of intertemporal substitution that have appeared in the literature the first approach is to use consumption to control for wealth and unobserved expectations about future wages in the labor supply equation the second approach is to estimate a first difference equation for hours in which labor supply from the previous period serves as a control for wealth and wage expectations the results indicate that intertemporal substitution elasticity for married men is positive but small

a dynamic model of union membership and employment that it recognizes some link between present wage and employment levels and future membership and that it has an interest in the level of membership attained we model membership decisions with stochastic demand and a differential layoff rate for union and non union workers membership dynamics are behavioural in that membership increases when the utility of being a member exceeds the utility of not being a member the model permits a variety of possible relationships between employment and membership in the adjustment to steady state

priorities and sequencing in privatization evidence from czech firm panel data abstract while privatization of state owned enterprises has been one of the most important aspects of the economic transition from a centrally planned to a market system no transition economy has privatized all its firms simultaneously this raises the question of whether governments privatize firms strategically in this paper we examine the determinants of the sequencing of privatization to obtain testable predictions about the factors that may affect sequencing we investigate the following competing government objectives i maximizing efficiency through resource allocation ii maximizing public goodwill from the free transfers of shares to the public iii minimizing political costs iv maximizing efficiency through information gains and v maximizing privatization revenues next we use firm level data from the czech republic to test the competing predictions about the sequencing of privatization consistent with the hypotheses of a government priority on revenues and public goodwill we find strong evidence that more profitable firms were privatized first the sequencing of privatization is also consistent with maximizing efficiency through information gains our results indicate that many empirical studies of the effects of privatization on firm performance suffer from a selection bias

popular economy in santiago de chile state of affairs and challenges do informal initiatives share a capitalist spirit of entrepreneurship this article attempts to answer this question using a popular economy analytical framework and focusing on the case of chile first we present the context of the research namely the economic and political evolutions in chile since the 1970s and their effects on the popular economy then we seek to answer the original question relying on in depth case studies of so called popular economy organizations our research shows that their socio economic logics significantly differ from those of the traditional capitalist firm our observations also suggest important differences between current and older initiatives 2014 elsevier ltd

risk aversion and land allocation between annual and perennial crops in semisubsistence farming a stochastic optimization approach this article analyzes the effect of production uncertainty on farmland allocation decisions between perennial and annual crops focusing on a representative farmer s attitude toward risk a dynamic stochastic optimization model that considers net planting the difference between new plantings and removals of perennial crops that achieve full production cycle is used the effect of uncertainty on the representative farmer s decisions to increase or decrease perennial crops acreage on the optimal path is examined our results reveal that the response of optimal path of net planting to uncertainty related to perennial crop production is highly affected by the farmer s attitude toward risk a risk averse or a low risk loving farmer tends to reduce land allocation to perennial crops under uncertainty while a high risk loving farmer will do exactly the opposite also due to disutility of farming the farmer tends to reduce land allocation to perennial crops when prices are high enough for him to attain a desired income level expectation one implication of this research is the need for mechanization in sub saharan countries in particular that increases per acreage yield and output in semisubsistence agriculture

optimal membership employment and income distribution in unionized and labor managed firms this article presents a static and dynamic intertemporal analysis of employment and income distribution in unionized and labor managed firms motivated by theoretical considerations and institutional features of western trade unions and labor managed firms we examine firms in which worker members share the risk of layoffs by acting as if compensating laid off members in the static framework we show that although the firms do not behave perversely their behavior depends crucially on the initial membership since the issue of optimal initial membership has been virtually ignored in the literature we analyze it next within a dynamic framework

tariffs and quotas under dynamic duopolistic competition abstract this paper analyzes tariffs and quotas in a differential game model of duopolistic competition for a homogeneous good equal import tariffs and quotas are compared with respect to resulting domestic prices the open loop and closed loop subgame perfect equilibria are derived the open loop game leads to domestic price equivalence however the closed loop game does not unless firms are myopic or the number of domestic firms becomes large thus we prove that the equivalence for static cournot competition does not carry over to the dynamic case

on illyrian macroeconomics the ward vanek labor managed economy macro models are found to contain errors in capital pricing treatment which when correct ed removes perverse responses and leads to monetary neutrality vanek s 1977 open model is shown not to be a labor managed econ omy model but rather one of any economy with fixed output a rational e xpectations macro model is developed in which labor managed firms mus t decompose price movement into its nominal and real parts this unce rtainty about the information content of observed prices leads to out put effects similar in spirit to the ward vanek models implications for monetary policy are explored copyright 1988 by the london school of economics and political science

capital asset pricing compatible with observed market value weights we show that the set of expected return vectors for which an observed portfolio is mean variance mv efficient is a two parameter family we identify ten ways to specify the time series behavior of the two parameters the result highlights a number of inconsistencies involved in mv modelling for each of the cases it permits the inference of the time series of expected return vectors as well as all the other capital asset pticing model capm variables compatible with a known covariance matrix and the observed time series of market value weights the empirical work shows that there are substantial case to case differences in the time series of mean vectors and many of them are quite different from the constant mean vector envisioned in tests of

union membership and employment dynamics abstract this note examines the behavior of a monopoly union that cares about its future membership and recognizes the dynamic dependence of membership on employment a characterization is given both of the steady state and of the interdependent employment and membership dynamics out of that steady state

the empirical minimum variance hedge decision making under unknown true parameters estimation risk is discussed along with bayes and parameter certainty equivalent pce criteria bayes criterion incorporates estimation risk in a manner consistent with expected utility maximization the pce method which is the most commonly used is not consistent with expected utility maximization bayes criterion is employed to solve for the minimum variance hedge ratio empirical application of bayes minimum variance hedge ratio is addressed and illustrated simulations shoe that discrepancies between prior and sample parameters may lead to substantial differences between bayesian and pce minimum variance hedges

workers enterprises are not perverse we give a simple direct proof that workers enterprises i e firms whose workers and partners coincide behave properly as price takers adjusting employment and the supply of output in the same direction as the relative price of the product thus belying the usual theory in which labor managed firms tend to curtail employment and output in their short run response to an increase in output price the logic of our proof derives again from the common sense of the worker partnership market in workers and incentives sertel 1982

a simple macroeconomic model of a labour managed economy abstract a simple macroeconomic model of a labour managed economy is analysed the paper looks at the comparative statics of stabilization policy in this type of economy while taking fully into account the nature of the macroeconomic equilibrium involved the fixed price quantity adjusting paradigm for describing non walrasian equilibria is adopted the effect of quantity constraints is to attenuate severely the perverse supply behaviour of the labour managed firm in consequence the results of previous analyses of labour managed macroeconomics which depend critically on the perverse supply behaviour are not robust to this non walrasian specification

on the equivalence of tariffs and quotas under duopoly abstract the purpose of this paper is to use a conjectural variation approach to examine the equivalence of tariffs and quotas set so as to result in the same equilibrium quantity of imports we have demonstrated that whether tariffs and quotas are equivalent depends crucially upon the particular value of the conjectural variations specifically in the case of equal import tariffs and quotas the equivalence holds only in the cournot case otherwise the domestic price is lower or higher under quotas depending upon whether competition is less or more competitive than cournot

the mean and variance of the mean variance decision rule the widely used mean variance approach to decisions under uncertainty requires estimates of the parameters of the joint distribution of returns when optimal behavior is determined using estimates rather than the true values the decision is a random variable we consider the reliability of mean variance analysis by examining the bias and variance covariance matrix for the decision vector the latter shows that decisions based on estimated parameters can have a large variance around the true optimum the results show that optimal decisions can differ substantially from those based on meanvariance analysis

restructuring of firms in transition ownership institutions and openness to trade we develop a theoretical framework for defensive and strategic restructuring and provide estimates of restructuring in privatized firms in an advanced transition economy slovenia our rich data point to both types of restructuring as well credit rationing and bargaining with respect to investment privatized firms display profit maximizing behavior and a firm s export orientation and institutional features such as insider vs outsider privatization employee ownership and employee control do not affect the firm s employment and investment behavior the results suggest that a major exposure to world competition induces similar economic behavior in firms with different structural and institutional characteristics

implicit contracts a survey 7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms incomplete contracts are required to yield involuntary layoffs in contract markets otherwise contracts are efficient and pareto optimal by construction there is a close relation between contract theory and neoclassical labor market theory contracts smooth consumption but increase the volatility of labor supply and labor utilization to demand disturbances because contractural insurance eliminates the income effects of socially diversifiable risks this result is similar to the intertemporal substitution hypothesis however the price mechanism in a contract is substantially different contracts embody a nonlinear two part pricing scheme the lump sum part allocates the income consumption consequences of risks and the marginal pricing part allocates production and labor utilization this implicit pricing mechanism is in all respects flexible though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity furthermore the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation indivisibilities appear necessary to account for the split between work sharing and layoffs contracts with private information are also considered in the nonlinear pricing context this abstract was borrowed from another version of this item

dynamics and asymmetric adjustment in insider outsider models this paper analyzes the time consistent and efficient solution for wages and employment in intertemporal insider outsider models of bargaining with endogenous membership when the reservation wage is made endogenous in a general equilibrium context insider outsider models can generate a fundamental asymmetry in the adjustment of employment to the steady state while upturns are gradual severe downturns are characterized by a sharp drop in employment obtained by laying off workers further reductions in employment are achieved solely through quits copyright 1992 by royal economic society

the theory of the labour managed firm revisited the voluntary interactive approach membership in the authors labor managed firm is determined in the long run by expected income maximization in the short run upon the realization of output price each member may leave the labor managed firm however a decision to leave when the entire membership quits is associated with fixed cost this arrangement ensures ex post egalitarianism and sense of job security the authors short run result is that employment does not exhibit a perverse response to price variations the long run result is that their labor managed firm is more populous than the illyrian firm and may even be more than its capitalistic twin copyright 1993 by royal economic society