asymmetric bidding in second price common value auctions abstract two comparative static characterizations for common value auctions under second price rules are extended to heterogeneous bidders the willingness to pay of the two highest bidders is enhanced on average by the release of public information and best responses are less aggressive when facing more rival bidders

the welfare implications of moral hazard and adverse selection in competitive insurance markets i model a competitive insurance market with both moral hazard and adverse selection and analyze the effect on welfare when both problems are present simultaneously an examination of the interaction between these two problems leads to two hypotheses first the nature of the equilibrium contracts is such that each problem partially offsets the welfare loss associated with the other and second the degree to which this occurs increases as agents become more heterogeneous simulation results overwhelmingly support both hypotheses

information competition and markets one of the dominant characteristics of modern capitalist economies is the important role played by competition not the peculiar static form of pure price competition embodied in the arrow debreu model but rather a dynamic competition more akin to the kind of competition represented by sports contests and other races including patent races in recent years there have been several attempts to explain why firms often base the pay of their workers and managers on relative performance see for example edward lazear and sherwin rosen 1981 such compensation schemes become desirable when three conditions are satisfied a the input effort of workers managers must not be directly observable at least without cost thus firms must either expend resources to monitor inputs or devise reward structures in which compensation is a function of variables such as output or profits which are themselves functions of inputs but are less costly to observe b the relationship between input and output must be stochastic so that by observing output one cannot perfectly infer what the input was c finally the stochastic disturbances which affect the relationship between input and output of different firms must be correlated by looking at the performance of one worker relative to that of others one can make better inferences about his effort than one can make without using this information not only can competition provide a basis of comparison which enables the design of reward structures that can simultaneously provide a high level of incentives with relatively low level risk but compensation schemes based on relative performance have the further advantage of automatically adjusting incentives to changes in the economic environment we refer to this as built in flexibility in a first best world with perfect information concerning the nature of the technology but where it is still costly to monitor individuals activities the compensation scheme would vary from time to time as the environment changed such changes in the compensation scheme are costly to implement and the information required to do so is seldom available when a task is easier the individual s rewards for performing the task should be reduced if pay is based on relative performance although all individuals perform better when they exert the same level of effort their compensation is automatically adjusted thus teachers frequently grade on the curve and a significant fraction of the pay of successful salesmen often consists of bonuses based on relative performance

revenue management with forward looking buyers a seller wishes to sell multiple goods by a deadline for example the end of a season potential buyers enter over time and can strategically time their purchases each period the profit maximizing mechanism awards units to the buyers with the highest valuations exceeding a sequence of cutoffs we show that these cutoffs are deterministic depending only on the inventory and time remaining in the continuous time limit the optimal mechanism can be implemented by posting anonymous prices when incoming demand decreases over time the optimal cutoffs satisfy a one period look ahead property and prices are defined by an intuitive differential equation

second sourcing and the experience curve price competition in defense procurement we examine a dynamic model ofprice competition in defense procurement that incorporates the experience curve asymmetric cost information and the availability of a higher cost alternative system we model acquisition as a two stage process in which initial production is governed by a contract between the government and the developer competition is then introduced by an auction in which a second source bids against the developer for remaining production we characterize the class of production contracts that are cost minimizing for the government and that induce the developer to reveal private cost information when high costs are revealed these contracts result in a credible cutoff of new system production in favor of the still higher cost alternative system

a mixed integer model of bidding strategies for outsourcing an emerging phenomenon in the management of information systems is outsourcing outsourcing is the contracting of various system management functions by user firms to vendors this paper focuses on the outsourcing bidding process pertinent to the selection of one contractor by a user firm the paper explores bidding situations where the vendors have different levels of expertise and cost structures truth revealing mechanisms that induce the vendors to bid competitively in line with their costs are utilized and a mixed integer programming model is presented the model allows the user firm to obtain the optimal expected contract cost some interesting conclusions emerge from the analysis of representative examples used in the paper first the results clearly show that truth revealing strategies always result in lower contract costs for the user firm than if the user firm were to follow the straightforward strategy of always choosing the lowest bid second the user firm can reduce contract costs by deploying a discriminatory selection policy vis a vis the different vendors third subsidies need to be given in order to ensure truth revealing behavior of the vendors thus the qualitative interpretations of the model parallel bidding behavior practices observed in the real world

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco

agency relationships in family firms theory and evidence does owner management necessarily eliminate the agency costs of ownership drawing on agency literature and on the economic theory of the household we argue that private ownership and owner management expose privately held owner managed firms to agency threats ignored by jensen s and meckling s 1976 agency model private ownership and owner management not only reduce the effectiveness of external control mechanisms they also expose firms to a self control problem created by incentives that cause owners to take actions which harm themselves as well as those around them jensen 1994 p 43 thus shareholders have incentive to invest resources in curbing both managerialand owner opportunism we extend this thesis to the domain of the family firm after developing hypotheses which describe how family dynamics and specifically altruism exacerbate agency problems experienced by these privately held owner managed firms we use data obtained from a large scale survey of family businesses to field test our hypotheses and find evidence which suggests support for our proposed theory finally we discuss the implications of our theory for research on family and other types of privately held owner managed firms

auctioning incentive contracts this paper draws a remarkably simple bridge between auction theory and incentive theory it considers the auctioning of an indivisible project among several fi rms the firms have private information about their future cost at th e bidding stage and the selected firm ex post invests in cost reduct ion the authors show that 1 the optimal auction can be implemented by a dominant strategy auction that uses information about both the first bid and the second bid 2 the winner faces a linear incenti ve contract 3 the fixed transfer to the winner decreases with his announced expected cost and increases with the second lowest announce d expected cost and 4 the share of cost overruns borne by the winn er decreases with the winner s announced expected cost copyright 1987 by university of chicago press

incentives in principal agent relationships this article identifies some of the major issues that have been examined in the literature on incentives the article begins by discussing the frictions that lie at the heart of incentive problems next the principal s optimal response to these frictions is explored taking as given the characteristics of the agents with whom the principal interacts in a nonrepeated setting the design of individualized contracts contests and tournaments is analyzed then the principal s task of selecting the best agent is addressed and repeated agency relationships are considered

procurement auctions with entry of bidders abstract in procurement auctions with a fixed number of bidders there is a tradeoff between cost efficiency and rent extraction an optimal mechanism therefore entails distortions of effort laffont and tirole 1987 if potential suppliers must sink an entry investment before they can participate in the auction then decreasing the firms rent may imply reduced entry we show that if potential bidders are uninformed before entry commitment to a plain nondistortive auction is optimal in contrast if potential bidders learn all their private information before entry the optimal mechanism entails the same distortions as in laffont and tirole s static model

optimal domestic regulation under asymmetric information and international trade a simple general equilibrium approach we investigate the design of domestic incentive regulations in a small economy opened to trade and its implications for international specialization and for trade openness to remain welfare improving more specifically we append to an otherwise standard 2 2 heckscher ohlin model of a small open economy a continuum of intermediate sectors producing nontradable goods used in tradable sectors those goods are produced by privately informed regulated firms asymmetric information induces distortions with general equilibrium impacts the small economy becomes relatively richer in the informationally sensitive factor so that asymmetric information might reverse trade patterns free trade is pareto dominated by autarky when it exacerbates agency distortions

a unified systems perspective of family firm performance abstract theory and practice indicate that in family influenced firms the interaction of the family unit the business entity and individual family members create unique systemic conditions and constituencies that impact the performance outcomes of the family business social system habbershon and williams fam bus rev 12 1999 1 have suggested that these unique systemic family influences can be captured through an analysis of the resources and capabilities of the organization in this paper we pursue their line of thinking and more specifically examine the systemic relationship of resources and capabilities as a source of advantage or constraint to the performance outcomes for family influenced firms the idiosyncratic firm level bundle of resources and capabilities resulting from the systems interactions are referred to as the familiness of the firm wealth creating performance for family influenced firms is a function of the distinctive familiness generated by the family business system the performance model focuses on a particular subset of family influenced firms whose performance goal is transgenerational wealth and wealth creation potential we refer to those families that meet this premise as enterprising families we develop a unified systems model of performance that links the resources and capabilities generated in the enterprising families system with their potential for transgenerational wealth creation

standard auctions with financially constrained bidders we develop a methodology for analyzing the revenue and efficiency performance of auctions when buyers have private information about their willingness to pay and ability to pay we then apply the framework to scenarios involving standard auction mechanisms in the simplest case where bidders face absolute spending limits first price auctions yield higher expected revenue and social surplus than second price auctions the revenue dominance of first price auctions over secondprice auctions carries over to the case where bidders have access to credit these rankings are explained by differences in the extent to which financial constraints bind in different auction formats

the price of advice we develop a model of consulting advising where the role of the consultant is to reveal signals to her client that refine the client s original private estimate of the profitability of a project although the client can perfectly observe and evaluate these signals the consultant may only be able to do the same imperfectly or not at all this captures the idea that the expert may not fully understand the impact of her advice on the client we characterize the optimal contract between the consultant and her client it is a menu consisting of pairs of transfers specifying payments between the two parties in case the project is undertaken by the client and in case it is not the main result of the article is that in the optimal mechanism the consultant obtains the same profit as though she could perfectly observe and evaluate the impact of the signals whose release she controls on the client s profit estimate

family firms corporate social performance a calculated quest for socioemotional wealth this study investigates the engagement of family firms in corporate social responsibility we first compare their corporate social performance csp to non family firms then following recent evidence on the heterogeneity of family firms we examine two factors that may influence csp within family firms the level of family control and the governance orientation of the country in which they operate this research is based on a theoretical framework which considers both agency and socioemotional wealth sew influences on family firms csr engagements overall we find that family firms exhibit lower csp than non family firms but when focusing on family firms our analyses show a curvilinear relationship between family control and csp at lower levels of control family owners invest more in social initiatives to protect their sew beyond a threshold level of control that we estimate at 36 in our sample economic considerations prevail over sew and social performance starts decreasing we also find that family firms operating in stakeholder oriented countries are more attentive to social concerns than those operating in more shareholder oriented countries

simple menus of contracts in cost based procurement and regulation in an influential paper jean jacques laffont and jean tirole 1986 formulated a principal agent model of cost based procurement and regulation and showed that the principal can implement the optimal mechanism by offering the agent a menu consisting of a continuum of linear contracts two related problems with applying this theory in practice have been that the economic logic and the underlying mathematics involved in calculating the optimal menu are quite complex and the principal must be able to specify the agent s entire disutility of effort function in order to calculate the optimal menu as a result the model has not been widely used in practice to either calculate actual incentive contracts or even to develop useful qualitative guidance about the nature of the optimal solution and how it is affected by various economic factors the purpose of this paper is to show that dramatically simpler menus which are easy to understand and calculate and which have lower informational requirements can at least in some cases capture a substantial share of the gains achievable by the fully optimal complex menu in particular this paper considers two item menus where one item is a cost reimbursement contract and the other item is a fixed price contract such menus are called fixed price cost reimbursement fpcr menus for the case where the agent s utility is quadratic and the agent s type is distributed uniformly it is shown that the optimal fpcr menu always captures at least three quarters of the gain that the optimal complex menu achieves where the gain is measured relative to the result of using a cost reimbursement contract this paper s research was originally motivated by a policy issue in defense procurement in the united states the department of defense dod purchases almost all major weapons systems from sole source contractors using contracting methods that essentially amount to using cost reimbursement contracts the best way to understand why dod uses costreimbursement contracting methods is that they perform precisely the function identified in laffont and tirole s principal agent model they guarantee in a situation that amounts to a bilateral monopoly that dod and the firm can reach an agreement i e they guarantee that the agent will always produce the good of course the use of cost reimbursement contracting methods

regulation by price adjustment the regulatory price adjustment process originally proposed by vogelsang and finsinger has been shown to be vulnerable to strategic manipulation by the regulated firm this article proposes several modifications to that scheme which improve its performance and broaden its applicability inclusion of a monopoly franchise market and the firm s past prices and earnings in the price adjustment constraints are shown to ensure efficient production by the firm and convergence to ramsey prices regardless of the firm s cost structure

bargaining and regulation with asymmetric information about demand and supply abstract rate regulation is studied as a bargaining process in which consumers and the firm negotiate output and payments under asymmetric information the feasible set of transactions given incentive compatibility and individual rationality constraints is characterized the set of interim incentive efficient mechanisms for the direct revelation game is also characterized sufficient conditions are given for efficient mechanisms to be full information efficient efficient mechanisms are identified which correspond to nonlinear monopoly pricing monosony compensation schedules and the baron myerson regulation model

awarding monopoly franchises the authors analyze how to award a monopoly franchise when the objective is to maximize expected consumers surplus net of transfer payments to the producer potential producers initially possess independent private information about uncertain production costs only the chosen producer subsequently observes realized production costs after awarding the franchise to the producer with the lowest expected costs prices are optimally set above realized marginal cost these ex post distortions foster more competitive bidding ex ante the distortions for any bid cost pair are invariant to the number of bidders n though expected distortions and profits decline with n copyright 1987 by american economic association

bidder solicitation adverse selection and the failure of competition we study a common value first price auction in which the number of bidders is endogenous the seller auctioneer knows the value and solicits bidders at a cost the number of bidders which is unobservable may thus depend on the true value therefore being solicited conveys information this solicitation effect may soften competition and impede information aggregation under certain conditions there is an equilibrium in which the seller solicits many bidders yet the resulting price is not competitive and fails to aggregate any information more broadly these ideas are relevant for markets with adverse selection in which informed traders initiate contacts

entry and competition effects in first price auctions theory and evidence from procurement auctions motivated by several interesting features of the highway mowing auction data from the texas department of transportation tdot we study three competing procurement auction models with endogenous entry our entry and bidding models provide several interesting implications for the first time we show that even within an independent private value paradigm as the number of potential bidders increases bidders equilibrium bidding behaviour can become less aggressive and the expected procurement cost may rise because the entry effect is always positive and may dominate the negative competition effect we then develop structural models of entry and bidding corresponding to the three models under consideration controlling for unobserved auction heterogeneity and use the recently developed semi parametric bayesian estimation method to analyse the data we select the model that best fits the data and use the corresponding structural estimates to quantify the entry effect and the competition effect with regard to the individual bids and the procurement cost copyright 2009 wiley blackwell

discrimination fact or fiction an examination using an alternative approach women earn less than men blacks earn less than whites these facts are blatantly observable in the economy with the proliferation of civil rights legislation in the last two decades social scientists have become increasingly concerned with the determination of the wage gap attributable to discrimination because workers have different productivities statistical methods have been used to isolate the discrimination effect from wage differences justified by differences in productivity the primary method estimates an equation with wages expressed as a function of productivity and sex or race since productivity cannot be directly observed a number of proxies for productivity have been used such as education tenure and experience statisticians 11 have shown that the necessity of using proxies results in statistical biases which may tend to overestimate discrimination they have shown that mismeasuring any independent variable can impart a bias on each regression coefficient thereby causing a severe misestimate of discrimination these errors are proportional to the degree of mismeasurement the relative degree of error variance in the independent variables as well as to the amount of intercorrelation between each variable and race or

the influence of family ownership dispersion on debt level in privately held firms the aim of this article is to investigate the financing behavior of privately held firms along the dispersion of family ownership drawing on the socio emotional wealth perspective we argue that debt levels are contingent on the degree of ownership dispersion among family members based on a sample of 2451 observations in a 10 year time frame our results reveal the existence of an inverted u shaped relationship between debt level and intra family ownership dispersion we demonstrate that this relationship is moderated by the generational involvement that inverts it in later generations

design competition through multidimensional auctions this article studies design competition in government procurement by developing a model of two dimensional auctions wherefirms bid on both price and quality and bids are evaluated by a scoring rule designed by a buyer three auction schemes first score second score and second preferred offer are introduced and related to actual practices if the buyer can commit to a scoring rule in his best interest the resulting optimal scoring rule underrewards quality relative to the buyer s utility function and implements the optimal outcome for the buyer underfirst and second score auctions absent the commitment power the onlyfeasible scoring rule is the buyer s utility function under which 1 all three schemes yield the same expected utility to the buyer and 2 first and second score auctions induce the first best level of quality which turns out to be excessive from the buyer s point of view

the regulation of environmental innovations abstract we offer mechanisms to regulate environmental r d projects that are intertemporal and indivisible and involve high monitoring cost screening and contracting the r d performer are based solely on the project completion time when the project duration is ex ante uncertain to all parties including the performing firm the mechanism is formulated in terms of a completion time limit the mechanism extends to other intertemporal public projects as well as to principal agent settings with dynamic agent s tasks

family firm governance strategic conformity and performance institutional vs strategic perspectives a fundamental schism divides the family firm and strategy literatures on the one hand and the institutional literature on the other regarding both the situational prevalence and the utility of conforming behavior the first two schools respectively view strategic differentiation as especially common among family firms and an important source of competitive advantage by contrast the reasoning of institutionalists would suggest that family firms will be subject to unusually powerful motivations to conform in part because of their pursuit of socioemotional wealth objectives unfortunately the relationships between conformity and family firm governance and in fact governance in general have not been amply studied this analysis of fortune 1000 firms finds considerable support for the institutional perspective family involvement is related to greater not lesser conformity in many aspects of strategy although strategic conformity related to superior returns on assets it did not enhance firm market valuations

doing more with less innovation input and output in family firms family firms are often portrayed as an important yet conservative form of organization that is reluctant to invest in innovation however simultaneously evidence has shown that family firms are flourishing and in fact constitute many of the world s most innovative firms our study contributes to disentangling this puzzling effect we argue that family firms owing to the family s high level of control over the firm wealth concentration and importance of nonfinancial goals invest less in innovation but have an increased conversion rate of innovation input into output and ultimately a higher innovation output than nonfamily firms empirical evidence from a meta analysis based on 108 primary studies from 42 countries supports our hypotheses we further argue and empirically show that the observed effects are even stronger when the ceo of the family firm is a later generation family member however when the ceo of the family firm is the firm s founder innovation input is higher and contrary to our initial expectations innovation output is lower than that in other firms we further show that the family firm innovation input output relationships depend on country level factors namely the level of minority shareholder protection and the education level of the workforce in the country

procurement policy and contracting efficiency the contracting literature has emphasized the optimality of using certain contracting instruments such as multiple cost observations full commitment self selection and competition a two period procurement model is constructed incorporating all of the instruments and optimal contracts are characterized numerical examples suggest that the marginal benefits of full commitment self selection and multiple cost observations are small while the benefits of competition are larger to obtain some evidence on contracting costs defense contracting is reviewed it indicates that using these instruments is very costly thus calling into question the optimality of using all of the procurement instruments copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

holdups standard breach remedies and optimal investment in bilateral trading problems the parties may be hesitant to make relationship specific investments without adequate contractual protection we postulate that the parties can sign noncontingent contracts prior to investing and can freely renegotiate them after information about the desirability of trade is revealed we find that such contracts can induce one party to invest efficiently when courts impose either a breach remedy of specific performance or expectation damages moreover specific performance can induce both parties to invest efficiently if a separability condition holds expectation damages on the other hand is poorly suited to solve bilateral investment problems forthcoming the american economic review please contact the program in law and economics at boalt hall school of law uc berkeley berkeley ca 94720 for a copy of this paper

contract selection and performance in competitive bidding for electricity generation third parties bidding to supply utilities with electric generation facilities is a new and increasingly important practice six states have either establishes bidding programmes or are considering doing so the paper uses data from maine the first state to use electric generation bidding to examine which bids are awarded contracts and which contracts fail to fulfill their provisions results show that bid price plays a very small role if any in the selection process

rational expectations information acquisition and competitive bidding most rational expectations market equilibrium models are not models of price formation and naive mechanisms leading to such equilibria can be severely manipulable in this paper a bidding model is developed which has the market like features that bidders act as price takers and that prices convey information higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices bidders can benefit from trading only if they have a transactions motive or if they have access to inside information apart from exceptional cases prices are not fully revealing a two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing resolving a well known paradox

auctionin entry into tournaments a research tournament model with heterogeneous contestants is presented for a large class of contests the optimal number of competitors is two this insight makes designing the tournament easier and highlights the importance of selecting highly qualified contestants while customary uniform price and discriminatory price auctions are intuitively appealing mechanisms for solving this adverse selection problem in practice they generally will not be efficient mechanism for selecting contestants instead we propose an alternative auction format that is equally simple to implement and efficiently selects the most qualified contestants to compete regardless of the form of contestant heterogeneity

to be different or to be the same it s a question and theory of strategic balance this paper addresses the performance consequences of firm level strategic similarity past research observed that firms face pressures to be different and to be the same by differentiating firms reduce competition by conforming firms demonstrate their legitimacy both reduced competition and legitimacy improve performance this paper begins building a theory of strategic balance by synthesizing the differentiation and conformity perspectives the theory directs attention to intermediate levels of strategic similarity where firms balance the pressures of competition and legitimation empirical support for the theory is found in a longitudinal study of commercial banks several suggestions for developing a theory of strategic balance conclude the paper the theory s major implication is that firms should be as different as legitimately possible copyright 1999 john wiley sons ltd

disentangling the incentive and entrenchment effects of large shareholdings this article disentangles the incentive and entrenchment effects of large ownership using data for 1 301 publicly traded corporations in eight east asian economies we find that firm value increases with the cash flow ownership of the largest shareholder consistent with a positive incentive effect but firm value falls when the control rights of the largest shareholder exceed its cash flow ownership consistent with an entrenchment effect given that concentrated corporate ownership is predominant in most countries these findings have relevance for corporate governance across the world

incomplete information and optimal market structure public purchases from private providers abstract market structure is endogenized in a normative model of public procurement featuring a social cost of profit product variety economies of scale and incomplete information about cost depending on parameters either sole sourcing or dual sourcing might be optimal however if the social cost of profit is positive but not too large incomplete information biases optimal market structure in favor of sole sourcing on the other hand this bias in favor of sole sourcing may be reversed if the social cost of profit is large an application to the publicly financed treatment for drug abuse motivates the analysis

dual sourcing in repeated procurement competitions the issue of maintaining competition over time in a repeated procurement setting is important for both government and private sector buyers the u s department of defense has experimented with splitting production quantities between two or more contractors in an effort to make government business more attractive for the private sector this paper analyzes the effectiveness of this strategy we find that in a two period model with production learning and entry costs dual sourcing even for the specific mechanism we consider in some cases reduces overall expected cost moreover if buyers are unable to commit to long term contracts or suppliers are unable to bid away anticipated gains the incentives to dual source are often stronger

optimal design of research contests procurement of an innovation often requires substantial effort by potential suppliers motivating effort may be difficult if the level of effort and quality of the resulting innovation are unverifiable if innovators cannot benefit directly by marketing their innovations and if the buyer cannot extract up front payments from suppliers we study the use of contests to procure an innovation in such an environment an auction in which two suppliers are invited to innovate and then bid their prizes is optimal in a large class of contests if contestants are asymmetric it is optimal to handicap the most efficient one

the sensitivity of an empirical model of married women s hours of work to economic and statistical assumptions this study undertakes a systematic analysis of several theoretic and statistical assumption s used in many empirical models of female labor supply using a singl e data set psid 1975 labor supply data the author is able to replic ate most of the range of estimated income and substitution effects fo und in previous studies in this field he undertakes extensive specif ication tests and finds that most of this range should be rejected du e to statistical and model misspecifications the two most important assumptions appear to be the tobit assumption used to control for sel f selection into the labor force and exogeneity assumptions on the wi fe s wage rate and her labor market experience copyright 1987 by the econometric society

the social construction of market value institutionalization and learning perspectives on stock market reactions this study advances a social constructionist view of financial market behavior the paper suggests that the market s reaction to particular corporate practices such as stock repurchase plans are not as financial economists contend simply a function of the inherent efficiency of such practices rather stock market reactions are also influenced by the prevailing institutional logic and the degree of institutionalization of the practice the theory first predicts that the emergence of the agency perspective on corporate governance in the mid 1980s represented a powerful new institutional logic that would lead the market to reverse its prior aggregate reaction to stock repurchase plans in the united states the paper then considers the potential for institutional decoupling of repurchase plans and develops competing hypotheses about how the market value of these policies might have changed as more firms formally adopted but did not implement the plans over time in contrast to a financial economic pers

simple cost sharing contracts we extend rogerson s 2003 intriguing analysis of the performance of simple procurement contracts to consider settings where the supplier s innate production cost is not necessarily distributed uniformly although the simple contract that rogerson analyzes performs remarkably well when the smaller cost realizations are relatively likely it can perform poorly when the larger cost realizations are relatively likely we show that in all settings under consideration though a fairly simple pair of contracts one that involves linear cost sharing and one that involves full cost reimbursement can always secure more than 73 of the gain achieved with a fully optimal contract

empirical age earnings profiles the human capital earnings function in which earnings are expressed as a quadratic in potential experience is probably the most widely accepted empirical specification in economics in spite of its widespread acceptance the human capital earnings function provides a very poor approximation of the true empirical relationship between earnings and experience the standard formulation understates early career earnings growth by about 30 50 and overstates midcareer growth by 20 50 however simple alternative specifications that fit the data are available

equilibria in open common value auctions abstract a sufficient condition for uniqueness of nash equilibrium in second price common value auctions is identified we establish that there exists a continuum of equilibria in irrevocable exit common value auctions for the case of two bidders we provide plausible sufficient conditions under which the expected seller revenue is maximized at the symmetric equilibrium an example in which the auctioneer s revenue at the symmetric equilibrium in a second price auction is strictly greater than the revenue at many asymmetric equilibria in the corresponding irrevocable exit auction is provided

the reverse regression problem statistical paradox or artefact of misspecification the usual approach to wage discrimination asks whether certain individuals receive lower wages for the same level of productivity characteristics the reverse approach asks whether these individuals are more productive given the same wages when these hypotheses are tested incompatible conclusions seem to result to circumvent specification problems nonparametric techniques were used to estimate canadian male female wage experience profiles the findings indicate that when the correct functional form is specified and the effects of childrearing activities are controlled for there exists a wage experience gap favoring men regardless of the approach suggesting that the paradox may be simply an artifact of misspecification

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

cost reducing investment optimal procurement and implementation by auctions the authors analyze a model in which potential suppliers invest in research and development r d and then compete for a procurement contract from a buyer if the buyer is able to commit to a procurement mechanism before the investment stage the full information solution can be uniquely implemented by first price and second price sealed bid auction mechanisms when the r d technology exhibits decreasing returns to scale if the procurement mechanisms and the levels of investment are chosen simultaneously the full information solution cannot be implemented the authors discuss how the second best equilibrium contract varies with the number of suppliers copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

cellular service demand biased beliefs learning and bill shock by april 2013 the fcc s recent bill shock agreement with cellular carriers requires consumers be notied when exceeding usage allowances will the agreement help or hurt consumers to answer this question we estimate a model of consumer plan choice usage and learning using a panel of cellular bills our model predicts that the agreement will lower average consumer welfare by 2 per year because rms will respond by raising monthly fees our approach is based on novel evidence that consumers are inattentive to past usage meaning that bill shock alerts are informative and advances structural modeling of demand in situations where multipart taris induce marginal price uncertainty additionally our model estimates show that an

informing consumers about their own preferences we analyze a model of monopolistic price discrimination where only some consumers are originally sufficiently informed about their preferences e g about their future demand for a utility such as electricity or telecommunication when more consumers become informed we show that this benefits also those consumers who remain uninformed as it reduces the firm s incentives to extract information rent by reducing the costs of information acquisition or forcing firms to supply consumers with the respective information about past usage policy can further improve welfare as contracts become more efficient the last observation stands in contrast to earlier findings by cremer and khalil american economic review 1992 where all consumers are uninformed

toward a theory of agency and altruism in family firms surprisingly the majority of u s family firms offer employed family members short and long term performance based incentive pay we draw on the household economics and altruism literatures to explain why family firms might feel compelled to do so and develop theory that predicts when this practice will be beneficial results based on data obtained from 883 family firms show that altruism as reflected by the parents estate and share transfer intentions moderates the effect of these pay incentives as our theory predicts as such this article helps explain both how altruism influences agency relationships in family firms and why business practice in family firms differs from those found in other types of firms

cartel enforcement with uncertainty about costs what cartel agreements are possible when firms have private information about production costs in order for a cartel agreement to work it must take into account the incentives for firms to misrepresent their cost information and it must provide sufficient reward so that no firm wishes to defect for private cost uncertainty we characterize the set of cartel agreements with side payments that can be supported as bayesian nash equilibria we show that if defection results in either cournot or bertrand competition the incentive problems in large cartels are severe enough to prevent the cartel from achieving the monopoly outcome in contrast with common cost uncertainty the incentive problems become less severe in large cartels allowing perfect collusion

the correlates of entrepreneurship in three types of firms the objective of the research was to discover the chief determinants of entrepreneurship the process by which organizations renew themselves and their markets by pioneering innovation and risk taking some authors have argued that personality factors of the leader are what determine entrepreneurship others have highlighted the role played by the structure of the organization while a final group have pointed to the importance of strategy making we believed that the manner and extent to which entrepreneurship would be influenced by all of these factors would in large measure depend upon the nature of the organization based upon the work of a number of authors we derived a crude typology of firms simple firms are small and their power is centralized at the top planning firms are bigger their goal being smooth and efficient operation through the use of formal controls and plans organic firms strive to be adaptive to their environments emphasizing expertise based power and open communications the predictiveness of the typology was established upon a sample of 52 firms using hypothesis testing and analysis of variance techniques we conjectured that in simple firms entrepreneurship would be determined by the characteristics of the leader in planning firms it would be facilitated by explicit and well integrated product market strategies and in organic firms it would be a function of environment and structure these hypotheses were largely borne out by correlational and multiple regression analyses any programs which aim to stimulate entrepreneurship would benefit greatly from tailoring recommendations to the nature of the target firms

motivating wealth constrained actors we examine how owners of productive resources e g public enterprises or financial capital optimally allocate their resources among wealth constrained operators of unknown ability optimal allocations exhibit 1 shared enterprise profit the resource owner always shares the operator s profit 2 dispersed enterprise ownership resources are widely distributed among operators of varying ability 3 limited benefits of competition the owner may not benefit from increased competition for the resource and sometimes 4 diluted incentives for the most capable more capable operators receive smaller shares of the returns they generate implications for privatizations and venture capital arrangements are explored

a multilevel analysis of the performance implications of excess control in business groups a central premise of business groups is that controlling shareholders seize disproportionate control in excess of their ownership as a means of becoming and remaining competitive we reexamine this axiom by exploring the relationship between excess control rights and performance outcomes in business groups using a sample of 106 taiwanese business groups we confirm that the effects of excess control in business groups are double edged such that group level excess control exhibits an inverted u shaped relationship with group performance at the same time results show that when group level excess control is high there is a stronger negative relationship between firm level excess control and firm performance moreover the study indicates that the detrimental effect of excess control is less pronounced in business groups that are governed by family members or by professional managers findings offer a far deeper view than previously proposed on the excess control phenomenon in business groups and the ne

optimal incentive contracts with multiple agents abstract a setting in which a single principal contracts with two agents who possess perfect private information about their own productivity is considered with correlated productivities each agent s private information also provides a signal about the other agent s productivity in contrast to the setting in which there is only one agent it is shown that such private information may be of no value to the agents it is only if the agents are risk averse that their private information may allow them to command rents moreover when the agents are constrained only to reveal their private information truthfully as a nash equilibrium the pareto optimal incentive scheme may induce the agents to adopt strategies other than truth telling this leads to the consideration of truth telling equilibria that are not pareto dominated in the subgame played by the agents among all such equilibria the one preferred by the principal restricts one agent to tell the truth as a dominant strategy and the other as a nash response to truth

regulation competition and liberalization in many countries throughout the world regulators are struggling to determine whether and how to introduce competition into regulated industries this essay examines the complexities involved in the liberalization process while stressing the importance of case specific analyses this essay distinguishes liberalization policies that generally are procompetitive from corresponding anticompetitive liberalization policies

male female wage differentials and policy responses without implicating them for any of the contents of the paper i am grateful to the following for helpful discussions or comments andrea beller university of illinois david bloom harvard and columnbia glen cain university of wisconsin ron ehrenberg cornell victor fuchs stanford bob gregory australian national university jonathan leonard university of california berkeley roberta robb brock university and paul weiler harvard financial support of the humanities and social sciences committee of the research board of the universitu of toronto is eratefullu acknowlede ed

stewardship or agency a social embeddedness reconciliation of conduct and performance in public family businesses two contradictory perspectives of family business conduct and performance are prominent in the literature the stewardship perspective argues that family business owners and managers will act as farsighted stewards of their companies investing generously in the business to enhance value for all stakeholders by contrast the agency and behavioral agency perspectives maintain that major family owners in catering to family self interest will underinvest in the firm avoid risk and extract resources this paper argues that both these views have application but under different circumstances determined in part by the degree to which the firm and its executive actors are embedded within the family and thus identify with its interests stewardship behavior will be less common and agency behavior will be more common the greater the number of family directors officers generations and votes and the more executives are susceptible to family influence these findings are supported among fortune 1000 firms as well as among the subsample of those firms that are family businesses

repeated auctions of incentive contracts investment and bidding parity with an application to takeovers this article considers a two period model of natural monopoly and second sourcing the incumbent supplier invests in the first period after observing the incumbent s first period performance the buyer may break out in the second period the investment may or may not be transferable to the second source and it may be monetary or take the form of human capital we determine whether the incumbent should be favored at the reprocurement stage and how the slope of his incentive scheme should evolve over time we find that the gains from second sourcing are not so large as one might hope finally we reinterpret the second source as a raider and the breakout as a takeover we discuss the desirability of defensive tactics and obtain a rich set of testable implications concerning the size of managerial stock options the extent of defensive tactics the firm s performance and the probability of a takeover

on delegating price authority to a regulated firm this article models a regulatory environment in which the regulated firm possesses better information about demand conditions than does the regulator the regulator would like to tie prices to the firm s private information in a socially optimal way to do so the regulator must induce the firm either truthfully to reveal private information or equivalently unilaterally to set socially optimal prices this is accomplished by assessing lump sum subsidies or taxes that depend in an appropriate way on the prices announced by the firm this mechanism can be reinterpreted as a two part tariff scheme whereby both the service fee and price per unit respond to shifting demand conditions

regulating complementary products a comparative institutional analysis optimal regulation subject to informational constraints is analyzed for industries for which production requires complementary inputs an issue for regulatory policy is whether supply in these industries should be bundled or unbundled bundled supply calls for regulation of an integrated industry unbundled supply has each component regulated separately a main result is that unbundling introduces into regulation an additional component of information cost that is similar to double marginalization in the monopoly pricing of complementary products unbundling may be advantageous if it allows sufficient competition in nonmonopoly services but the information cost can exceed the benefits of competition

inside the family firm the role of families in succession decisions and performance this paper uses a unique dataset from denmark to investigate the impact of family characteristics in corporate decision making and the consequences of these decisions on firm performance we focus on the decision to appoint either a family or an external chief executive officer ceo the paper uses variation in ceo succession decisions that result from the gender of a departing ceo s first born child this is a plausible instrumental variable iv as male firstchild firms are more likely to pass on control to a family ceo relative to female first child firms but the gender of a first child is unlikely to affect firms outcomes we find that family successions have a large negative causal impact on firm performance operating profitability on assets falls by at least four percentage points around ceo transitions our iv estimates are significantly larger than those obtained using ordinary least squares furthermore we show that family ceo underperformance is particularly large for firms in high growth industries and for relatively large firms overall the empirical results demonstrate that professional non family ceos provide extremely valuable services to the organizations they head

filling the institutional void the social behavior and performance of family vs non family technology firms in emerging markets family businesses fbs are said to treat their employees with unusual consideration to form a cohesive internal community they are also claimed to develop deeper more extensive connections or relationships with outside stakeholders both behaviors may increase the viability of a business intended to support an owning family and its later generations such social linkages we believe may compensate for the lack of capital product and labor institutional infrastructures in dynamic emerging economies this survey study of a most challenging emerging market sector namely korean hightechnology businesses argues three major points 1 relationships of community and connection will be more common in fbs than in non fbs 2 these relationships will enhance performance in emerging market hightechnology sectors which because of their competitive complex and everchanging nature rely on significant expert knowledge and social capital within and outside the organizational community 3 the performance of fbs will benefit more from these community and connection relationships than the performance of non fbs because in these personally intimate settings employees and external partners will be especially likely to return the generosity of a visibly active owning family or to penalize its selfishness significant empirical support was found for most of these hypotheses

incentive and sampling effects in procurement auctions with endogenous number of bidders abstract we study an auction contest for a procurement of innovation firms exert effort and the resulting quality of innovation is ex ante uncertain given this uncertainty there is a trade off regarding the number of participating firms in the contest increasing the number of firms reduces each firm s chance of winning the auction leading the firms to reduce effort level meanwhile the chance of obtaining a high quality of innovation increases with the number of firms due to the randomness of the quality thus the procurer faces a nontrivial problem of how many firms to invite we show that in the high level of randomness it is optimal for the procurer to invite many firms as the randomness vanishes however inviting only two firms is optimal we also show that a fixed prize tournament may outperform the auction when the randomness is large

auctions when bidders prepare by investing in ideas abstract we consider auctions assuming bidders spend resources to increase their valuations standard auctions are efficient yet reserve price requirements entail a double inefficiency moreover optimal auctions differ from the well known static optimum finally we sketch the impact of information spillovers

full extraction of the surplus in bayesian and dominant strategy auctions we consider auctions for a single indivisible object in the case where the bidders have information about each other which is not available to the seller we show that the seller can use this information to his own benefit and we completely characterize the environ ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder s willingness to pay we provide this characterization for auctions in which the bidders have dominant strate gies and for those where the relevant equilibrium concept is bayesian nash in both set ups the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties we consider the situation in which an agent the seller possesses one indivisible unit of a good to which he attaches no value but the good has value to a number of potential buyers and its transfer to one of them would increase social welfare in particular the transfer to the buyer with the highest valuation maximizes social welfare in this paper we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay if the seller had full information about the reservation prices of potential buyers his optimal selling strategy would be very simple he would announce a price equal or very close to the highest reservation value the optimal strategy for the bidder with the highest evaluation would be to accept the offer note that we are treating a situation in which the seller can commit himself to a price as a result of the exchange the utility of the seller increases by the full amount of the increase in social welfare and he has been able to fully extract the surplus in many circumstances however a seller has only imperfect knowledge of the buyers willingnesses to pay in this case he must find some mechanism or auction which will enable him to maximize his benefit from the sale of the object the auction literature starts with this observation and shows how the seller can by an astute choice of auction extract the largest possible fraction of the surplus in general the literature has shown that this proportion is strictly less than one in some circumstances the bidders will have information about each other which is not available to the seller for instance in auctions for petroleum drilling rights bidders know the results of geological tests which they have

nonparametric estimation of models with generated regressors this paper considers nonparametric kernel estimation of models with generated regressors and derives the asymptotic distribution of the resulting estimators it is also shown how generated regressors may be used to reduce the dimensionality of certain nonparametric models a labour supply equation is estimated to illustrate the technique

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

impact of informal institutions on the prevalence strategy and performance of family firms a meta analysis family controlled firms fcfs prevalence strategies and performance differ across countries we explain these differences through the lens of informal institutions suggesting that different countries have different levels of appreciation for family business to capture this effect we introduce the construct of family business legitimacy fbl and an associated index fbli we empirically measure fbli scores for 83 countries spanning both developed and emerging economies by combining meta analytic and archival data we show that fcfs prevail follow unique strategies and outperform non fcfs in countries with high fbli scores as a new contingency variable fbl advances the literature on the informal institutional embeddedness of organizations and family business

digging for golden carrots an analysis of research tournaments contracting for research is often infeasible because research inputs are unobservable and research outcomes cannot be verified by a court sponsoring a research tournament can resolve these problems a model is presented in which contestants compete to find the innovation of highest value to the tournament sponsor the winner receives a prespecified prize the tournament game has a unique subgame perfect equilibrium free entry is not optimal because equilibrium effort by each researcher decreases in the number of contestants an optimally designed research tournament balances the probability of overshooting the first best quality level against the probability of falling short copyright 1995 by american economic association